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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8 - K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): JULY 18, 1997
MICRON ELECTRONICS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
MINNESOTA 0-17932 41-1404301
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(State or Other Jurisdiction) (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
900 E. KARCHER ROAD, NAMPA, IDAHO 83687
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(Address of Principal Executive Offices) (Zip Code)
(208) 898-3434
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(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report)
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INFORMATION TO BE INCLUDED IN THE REPORT
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ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS.
Merger Agreement. On June 10, 1997, Micron Electronics, Inc., a Minnesota
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corporation ("Registrant" or "Micron"), and Registrant's wholly-owned
subsidiary, Payette Acquisition Corporation, a Delaware corporation ("Sub"),
entered into an Agreement and Plan of Merger ("Merger Agreement") with NetFRAME
Systems Incorporated, a Delaware corporation ("NetFRAME" or the "Company").
Tender Offer. Pursuant to the Merger Agreement, on June 16, 1997, Sub
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commenced a tender offer (the "Offer") to purchase all the issued and
outstanding shares of Common Stock, par value $0.001 per share, of NetFRAME and
all associated rights (the "Shares") at a price per Share of $1.00 (the "Offer
Price"), net to the relevant selling shareholder in cash and without interest,
subject to reduction for any applicable federal backup or other applicable
withholding or stock transfer taxes. The Offer expired on July 14, 1997 and the
acquisition of the Shares tendered to Sub for payment was consummated on July
18, 1997, at which time 8,775,554 Shares, representing approximately 62.8% of
the outstanding Shares on such date, were purchased by Sub.
Determination of Price. The Offer Price was determined in arm's length
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negotiations among Micron, Sub and NetFRAME. In connection with Sub's and
Micron's review of the Company and in the course of their negotiations with the
Company, the Company provided Micron and Sub with certain business and financial
information which Micron and Sub believe is not publicly available.
Specifically, the Company provided Sub and Micron with information regarding its
severe liquidity and cash needs, including the possibility that the Company may
be forced to liquidate absent an immediate and substantial cash infusion or
acquisition of the Company. The Company also shared certain internal forecasts,
assuming consummation of the Merger and based upon receiving funding from
operating as a subsidiary of Micron, achieving certain manufacturing and
purchasing synergies with Micron, as well as pursuing a marketing and sales
model synergistic with Micron, and thereby reducing its operating costs.
Projections as to the Company's financial results on a stand-alone basis were
not utilized by Sub or Micron, as any such stand-alone projections were not
viewed as meaningful given the serious doubt as to the Company's viability
as a stand-alone entity and the possibility of immediate liquidation of the
Company absent an acquisition or substantial cash infusion.
Merger. NetFRAME intends to convene a special meeting of the stockholders
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of NetFRAME, currently scheduled to be held on August 27, 1997, to approve and
adopt the Merger Agreement and the Merger. Assuming receipt of such approval,
at the effective time of the Merger, each outstanding Share of NetFRAME which is
not owned by Sub, Micron or any other direct or indirect subsidiary of Micron
(other than those Shares held in the treasury of NetFRAME and Shares held by
stockholders who have demanded and perfected any appraisal rights they may have
under Delaware law) will be converted into the right to receive the Offer Price
and each outstanding stock option to purchase shares of NetFRAME Common Stock
and each other right to acquire shares of NetFRAME capital stock (collectively,
the "Options") will become fully exercisable and vested. All Options that are
outstanding immediately prior to the effective time of the Merger shall be
canceled at such time and the holders thereof shall receive an amount of cash
for each share subject to such Options equal to the excess, if any, of the Offer
Price over the
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exercise price per share of such Option subject to any required withholding
taxes. Sub owns a sufficient number of Shares to assure approval of the Merger
Agreement and the Merger at the special meeting. Micron has agreed in the Merger
Agreement to vote or cause to be voted all Shares owned by Sub or Micron in
favor of the Merger Agreement and the Merger. Accordingly, the affirmative vote
of the other holders of Shares is not required to approve the Merger Agreement
and the Merger.
Prior to the Merger, NetFRAME has agreed to carry on its business subject
to certain requirements, as set forth in the Merger Agreement. Following
consummation of the Offer, Micron and Sub are entitled to designate a number of
directors, representing at least a majority of the members of the NetFRAME Board
to be appointed or elected to such Board, but neither Micron nor Sub has yet
availed itself of such rights.
Consummation of the Merger is subject to (i) the prior approval of the
Merger Agreement and the Merger by the holders of a majority of the Shares, and
(ii) certain other closing conditions set forth in the Merger Agreement. There
are no federal or state regulatory requirements which remain to be complied with
in order to consummate the Merger (other than the filing of a certificate of
merger with the Secretary of State of Delaware). Micron and Sub may only
terminate the Merger Agreement with the mutual consent of the Company. The
Company may terminate the Merger Agreement upon certain conditions specified in
such agreement.
Funding. The total amount of funds required by Sub to consummate the Offer
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and the Merger is estimated to be approximately $15.6 million, including
approximately $1.75 million to pay related fees and expenses of Sub and Micron
but excluding amounts payable by Sub with respect to the cashing out of Options.
Sub will obtain such amount from Micron. Micron will provide such funds from
its working capital.
Micron Financial Assistance to the Company. Pursuant to the Merger
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Agreement, Micron has loaned the Company funds for working capital purposes
pursuant to a secured loan arrangement (the "Loan Agreement") originally entered
into in March 1997 between the Company and CIT Group/Business Credit, Inc.
("CIT"). CIT assigned to Micron all of its rights under the Loan Agreement with
the Company and related security interests and other rights. Pursuant to the
Loan Agreement, loans are secured by substantially all of the Company's assets.
The facility is an asset based revolving credit facility to finance eligible
accounts receivable and production inventory, subject to certain net worth and
other financial covenants. Micron paid CIT a fee to assign the CIT credit
facility to it, which fee NetFRAME would be required to reimburse in the event
of an early termination of the Loan Agreement. The assigned Loan Agreement
provides for a maximum of $12.0 million of funding from Micron to the Company.
As of July 31, 1997, $6.0 million had been loaned and was outstanding. The
interest rate under the loan by Micron is at the prime rate in effect at the
principal offices of Chase Manhattan Bank, N.A. in New York City, New York plus
0.50%, subject to certain adjustments. In addition, the Loan Agreement provides
for certain additional fees payable to Micron as the lender thereunder. The
Loan Agreement sets forth certain procedures with respect to the payment of
amounts due thereunder including the payment of interest on a monthly basis.
The loan becomes due on the earlier of (i) termination of the Loan Agreement,
(ii) a breach by the Company, or termination, of the Merger Agreement or (iii)
certain other events of default as specified in the Loan Agreement. Micron may
terminate the Loan Agreement upon certain conditions, including upon September
30, 1997 and the occurrence of certain events of default under the Loan
Agreement or Merger Agreement. Until termination of
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the Merger Agreement, Micron, as a creditor of the Company, has agreed not to
institute bankruptcy or insolvency proceedings against the Company.
The Stock Option Agreement. In connection with the execution of the Merger
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Agreement, Micron and the Company executed a Stock Option Agreement, whereby the
Company granted to Micron an irrevocable option exercisable in certain
circumstances to purchase shares of the Company's Common Stock representing a
19.9% equity stake in the Company at a per share purchase price of $1.00 (the
"Exercise Price") or, at Micron's election, by exchanging shares of Common Stock
of Micron at a rate, for each option share, of a number of shares of Micron
equal to the Exercise Price divided by the closing sale price of Micron shares
of common stock on the Nasdaq Stock Market for the trading day immediately
preceding the date of closing of the particular option exercise. As a result of
the consummation of the Offer, the Stock Option Agreement has terminated.
The Technology License Agreement. The Company granted to Micron, and all
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of its subsidiaries and affiliates, pursuant to a Technology License Agreement
(the "License Agreement") entered into concurrently with the Merger Agreement, a
nonexclusive license to all of the Company's technology associated with the
Company's 9000 series server products and any other Company products under any
phase of development on the effective date of the License Agreement. In
consideration of this grant, Micron has paid the Company a license fee of $1.5
million. The term of the License Agreement is perpetual. However, Micron may
terminate the License Agreement for any reason after 30 days from the effective
date thereof. Micron may also terminate the License Agreement in the event of
breach by the Company of any material obligation under the License Agreement
following 30 days notice and opportunity to cure. Upon termination of the
License Agreement, all rights and licenses granted to Micron terminate. In the
event that such a termination for breach by the Company occurs within five years
of the effective date of the License Agreement, the Company has agreed to refund
the full license fee to Micron upon such termination.
Prior Relationship between NetFRAME and Micron. Micron's wholly owned
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subsidiary, Micron Custom Manufacturing Services, Inc. ("CMS"), has previously
provided contract assembly services for the Company. In 1994 and 1995, the
Company purchased approximately $8.4 million and $10.7 million, respectively, of
products from CMS, primarily for memory intensive custom boards. In 1996,
purchases were approximately $9.5 million for customized circuit boards and
double sided memory modules. Year to date purchases through June 30, 1997 were
approximately $1.4 million, primarily for double sided memory modules. As of
July 22, 1997, outstanding trade payables owed to CMS totaled approximately
$340,000 for products ordered by the Company but not delivered by CMS. In
addition, CMS currently maintains inventory of certain products specifically
used in products manufactured on behalf of the Company.
Employment Agreements. NetFRAME has entered into change of control
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agreements (the "Change of Control Agreements") with the following executive
officers of NetFRAME: Robert Puette, Bulent Erbilgrin, Steven Huey, Vivian
Golub, Terry Hartsfield and Dan McCammon. Under the terms of the Change of
Control Agreements, in the event that a change of control results in any such
executive officer's involuntary termination without cause or constructive
termination within 12 months following a change in control, such executive
officer shall be entitled to the following compensation and benefits: (i) a
lump sum payment equal to (a) 12 months of pay at the employee's gross base
salary rate plus (b) amounts payable under any applicable target bonus; (ii)
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continued health care benefits, including dependent coverage, for a period of 12
months; and (iii) the acceleration of one half of the employee's unvested
outstanding stock options under the Company's 1992 Incentive Stock Option Plan
(unless such acceleration would make unavailable "pooling of interests"
accounting treatment of the change in control transaction and the purchase
method of accounting is not acceptable to the successor entity).
The Company has also entered into change of control agreements ("Additional
Agreements") with certain key employees of the Company, with terms similar to
the Change of Control Agreement except that salary payments and health care
benefits cover a six month rather than a twelve month period.
The term "change in control" is defined in the Change of Control Agreements
and the Additional Agreements to occur when (x) another person becomes the
direct or indirect beneficial owner of more than 50% of the Company's
securities, (y) with certain exceptions, the Company is merged or consolidated
with another company, or (z) the stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale of disposition by the
Company of all or substantially all of the Company's assets.
The consummation of the transactions contemplated by the Merger Agreement
constitute a change in control for purposes of the Change of Control Agreements
and the Additional Agreements. However, Messrs. Puette, Erbilgrin, Hartsfield
and Huey (the "Executive Officers") have each signed employment term sheets with
Micron. These term sheets (each an "Employment Term Sheet") provide that the
acceptance of the position proposed therein would not constitute actual or
constructive termination of employment under the terms of each Executive
Officer's Change of Control Agreement. The Change of Control Agreements will,
however, otherwise remain in effect.
The Employment Term Sheets provide for annual salary ($330,000 for Mr.
Puette; $192,000 for Mr. Erbilgrin; $192,000 for Mr. Huey; and $175,000 for Mr.
Hartsfield) and contemplate payment to such persons of target bonuses (up to
$600,000 for Mr. Puette; up to $192,000 for Mr. Erbilgrin; up to $192,000 for
Mr. Huey; and up to $175,000 for Mr. Hartsfield) based upon the Company's
achievement of certain financial and technological milestones through June 30,
1998, including the achievement of a significant improvement in the Company's
financial performance. The Employment Term Sheets further contemplate the grant
of stock options to such persons to purchase Micron common stock, subject to a
five year vesting schedule and with an exercise price equal to the underlying
common stock's fair market value (75,000 for Mr. Puette; 25,000 for Mr.
Erbilgrin; 25,000 for Mr. Huey; and 25,000 for Mr. Hartsfield). Each such
Employment Term Sheet is conditioned, however, upon consummation of the Offer
and the approval by the Board of Directors of Micron of each such term sheet,
which has been obtained.
Mr. Hartsfield resigned from the Company effective July 11, 1997 and is not
entitled to any of the benefits provided in the Change of Control Agreements, as
described above.
Available Information. Statements made in this current report on Form 8-K
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concerning the contents of any contract or other document are not necessarily
complete. With respect to each contract or other document filed as an exhibit
hereto, reference is hereby made to that document for a more complete
description of the matter involved and each such statement is hereby qualified
in its entirety by such reference.
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ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
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The audited financial statements of NetFRAME required to be filed
pursuant to Item 7(a) of Form 8-K will be filed on a Form 8-K/A within 60 days
after the date this Form 8-K is required to be filed.
(b) Pro Forma Financial Information.
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The Pro Forma Financial Information required to be filed pursuant to Item
7(b) of Form 8-K will be filed on a Form 8-K/A within 60 days after the date
this Form 8-K is required to be filed.
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(c) Exhibits.
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The following exhibits are filed herewith:
2.01 Agreement and Plan of Merger dated as of June 10, 1997 by and among
Micron Electronics, Inc., Payette Acquisition Corporation and
NetFrame Systems Incorporated. Incorporated by reference to Exhibit
c(1) to the Registrant's Schedule 14D-1 and Schedule 13D (Commission
File No. 0-17932) initially filed on June 16, 1997.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MICRON ELECTRONICS, INC.
Date: August 4, 1997 By /s/ T. Erik Oaas
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T. Erik Oaas
Chief Financial Officer
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