SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 26, 1998
------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number: 0-17932
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Micron Electronics, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1404301
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 E. Karcher Road, Nampa, Idaho 83687
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (208) 898-3434
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of outstanding shares of the registrant's common stock as of
March 16, 1998 was 95,663,180.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Micron Electronics, Inc.
Statements of Operations
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
February 26, February 27, February 26, February 27,
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 494,760 $ 510,274 $ 1,053,650 $ 931,292
Cost of goods sold 490,302 418,659 971,978 759,227
---------- ---------- ----------- ----------
Gross margin 4,458 91,615 81,672 172,065
Selling, general and
administrative 91,938 48,420 164,196 89,899
Research and development 3,759 1,034 7,341 1,917
Other expense (income),
net 19,196 (903) 21,003 (2,556)
---------- ---------- ----------- ----------
Operating income (loss) (110,435) 43,064 (110,868) 82,805
Gain on sale of MCMS
common stock 156,222 - 156,222 -
Interest income, net 1,989 1,536 4,183 2,806
---------- ---------- ----------- ----------
Income before taxes 47,776 44,600 49,537 85,611
Income tax provision 23,011 16,761 23,707 32,960
---------- ---------- ----------- ----------
Net income $ 24,765 $ 27,839 $ 25,830 $ 52,651
========== ========== =========== ==========
Earnings per share:
Basic $ 0.26 $ 0.30 $ 0.27 $ 0.57
Diluted 0.26 0.30 0.27 0.56
Number of shares used in
per share calculation:
Basic 95,622 92,988 95,587 92,726
Diluted 95,735 93,630 95,798 93,274
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE>
Micron Electronics, Inc.
Balance Sheets
(Dollars in thousands, except par value amounts)
<TABLE>
<CAPTION>
As of February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 341,075 $ 183,935
Liquid investments 10,034 10,068
Receivables 151,107 223,476
Inventories 54,986 115,501
Deferred income taxes 38,859 26,240
Other current assets 3,380 3,928
---------- ----------
Total current assets 599,441 563,148
Property, plant and equipment, net 144,478 191,536
Other assets 992 3,662
---------- ----------
Total assets $ 744,911 $ 758,346
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses $ 266,264 $ 304,608
Accrued licenses and royalties 36,547 36,034
Current debt 17,048 18,622
---------- ----------
Total current liabilities 319,859 359,264
Long-term debt 15,238 20,019
Deferred income taxes 3,277 86
Other liabilities 13,499 13,406
---------- ----------
Total liabilities 351,873 392,775
---------- ----------
Commitments and contingencies
Common stock, $.01 par value,
authorized 150.0 million shares;issued
and outstanding 95.7 million and 95.6
million shares as of February 26, 1998
and August 28, 1997, respectively 957 956
Additional capital 121,032 120,108
Retained earnings 270,950 245,139
Cumulative foreign currency translation
adjustment 99 (632)
---------- ----------
Total shareholders' equity 393,038 365,571
---------- ----------
Total liabilities and shareholders' equity $ 744,911 $ 758,346
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Micron Electronics, Inc.
Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<capiton>
Six months ended February 26, 1998 February 27, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,830 $ 52,651
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Depreciation and amortization 21,771 15,449
Gain on sale of MCMS common stock (156,222) -
Changes in assets and liabilities, net
of the effect of the sale of MCMS:
Receivables 29,133 19,064
Inventories 37,253 (37,698)
Accounts payable and accrued expenses 7,577 (2,882)
Accrued licenses and royalties 513 8,329
Deferred income taxes (7,303) 11,599
Other 7,988 257
---------- ----------
Net cash provided by (used for) operating
activities (33,460) 66,769
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (44,502) (34,297)
Proceeds from sales of property, plant and
equipment 5,802 193
Proceeds from sale of MCMS common stock, net
of cash 235,884 -
Other (1,231) -
---------- ----------
Net cash provided by (used for) investing
activities 195,953 (34,104)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 173 4,568
Repayments of debt (6,291) (1,754)
Proceeds from issuance of common stock 935 49,119
Purchase and retirement of stock (29) (112)
---------- ----------
Net cash provided by (used for) financing
activities (5,212) 51,821
---------- ----------
Net increase in cash and cash equivalents 157,281 84,486
Effect of exchange rate changes on cash and
cash equivalents (141) -
Cash and cash equivalents at beginning of
period 183,935 115,839
---------- ----------
Cash and cash equivalents at end of period $ 341,075 $ 200,325
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements
(Tabular amounts in thousands)
1. Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting solely of normal recurring
adjustments) necessary to present fairly the financial position of Micron
Electronics, Inc. and its subsidiaries (collectively, the "Company") and
their results of operations and cash flows. Certain reclassifications have
been made, none of which affect results of operations, to present the
financial statements on a consistent basis.
This report on Form 10-Q for the second quarter ended February 26, 1998
should be read in conjunction with the Company's Report on Form 10-K for
the fiscal year ended August 28, 1997. Portions of the accompanying
financial statements are derived from the audited year-end financial
statements of the Company dated August 28, 1997. The Company's fiscal year
is a 52 or 53 week period ending on the Thursday closest to August 31.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is
defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources.
The adoption of SFAS No. 130 is effective for the Company in fiscal 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires publicly-
held companies to report financial and other information about key revenue-
producing segments of the entity for which such information is available
and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial
statements is also to be provided. SFAS No. 131 is effective for the
Company in fiscal 1999 and the form of the presentation of the Company's
financial statements has not yet been determined.
2. Gain on Sale of MCMS Common Stock
On February 26, 1998, the Company completed the sale of 90% of its
interest in MCMS, Inc. ("MCMS"), formerly Micron Custom Manufacturing
Services, Inc. and a wholly-owned subsidiary of the Company. The sale was
structured as a recapitalization of MCMS (the "Recapitalization"), whereby
Cornerstone Equity Investors IV, L.P. ("Cornerstone"), other investors and
certain members of MCMS' management, including Robert F. Subia, then a
director of the Company, acquired the 90% interest in MCMS. In exchange
for the 90% interest in MCMS, the Company received $249.2 million in cash.
Subsequent to the Recapitalization of MCMS, the Company owned a 10% interest
in MCMS which is accounted for by the Company on the cost basis.
Accordingly, results of operations of MCMS subsequent to February 26,
1998 will be excluded from the Company's results of operations.
<TABLE>
<CAPTION>
3. Receivables
February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Trade receivables $ 149,500 $ 228,220
Receivables from affiliates, net 425 4,227
Income taxes recoverable from parent
corporation 516 1,377
Other 8,406 4,341
Allowance for doubtful accounts (5,993) (7,556)
Allowance for returns and discounts (1,747) (7,133)
---------- ----------
$ 151,107 $ 223,476
========== ==========
</TABLE>
4
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements-Continued
(Tabular amounts in thousands)
<TABLE>
<CAPTION>
4. Inventories
February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 29,107 $ 81,505
Work in progress 9,837 11,601
Finished goods 16,042 22,395
---------- ----------
$ 54,986 $ 115,501
========== ==========
</TABLE>
<TABLE>
<CAPTION>
5. Property, Plant and Equipment
February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,384 $ 1,639
Buildings 31,500 44,403
Equipment and software 143,241 167,413
Assets in progress 23,992 42,586
200,117 256,041
---------- ----------
Less accumulated depreciation and amortization (55,639) (64,505)
---------- ----------
$ 144,478 $ 191,536
========== ==========
</TABLE>
<TABLE>
<CAPTION>
6. Accounts Payable and Accrued Expenses
February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Trade accounts payable $ 178,794 $ 237,066
Payable to affiliates 10,360 10,971
Salaries, wages and benefits 23,909 26,006
Income taxes payable 29,424 2,193
Equipment contracts payable 1,203 2,139
Accrued warranty 14,825 12,988
Other 7,749 13,245
---------- ----------
$ 266,264 $ 304,608
========== ==========
</TABLE>
5
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements-Continued
(Tabular amounts in thousands)
<TABLE>
<CAPTION>
7. Debt
February 26, 1998 August 28, 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Notes payable in periodic installments
through September 2001, weighted average
interest rate of 7.54% and 7.52%,
respectively $ 18,341 $ 22,644
Capitalized lease obligations payable in
monthly installments through June 2000,
interest rate of 7.28% and 7.28%,
respectively 5,362 5,881
Amounts outstanding under revolving loan
agreement, due June 1998,variable interest
of 1.31% and 0.90%, respectively 8,583 9,283
Amounts outstanding under revolving loan
agreement, due May 1998, variable interest
of 7.63% at August 28, 1997 - 833
---------- ----------
32,286 38,641
Less current portion (17,048) (18,622)
---------- ----------
$ 15,238 $ 20,019
========== ==========
The Company has an unsecured revolving credit facility, expiring June
2000, with a group of financial institutions which provides for borrowings
of up to $130.0 million. Under the agreement, the Company is subject to
certain financial and other covenants including certain financial ratios
and limitations on the amount of dividends declared or paid by the Company.
For the quarter ended February 26, 1998, the Company was in violation of
its ratio of debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA") covenant, as calculated under the terms of the
agreement, which excludes the effect of the gain from the sale of MCMS.
The Company obtained a waiver for the violation of such covenant.
As a result, as of February 26, 1998, the Company was eligible to borrow
approximately $30 million under the agreement, but had no borrowings
outstanding.
The Company's wholly-owned subsidiary, Micron Electronics Japan K.K., has
an unsecured revolving credit facility with a financial institution,
expiring June 1998, providing for borrowings of up to 1.5 billion Japanese
yen (US$11.7 million at February 26, 1998). As of February 26, 1998, the
Company was eligible to borrow the full amount under the agreement and had
US$8.6 million outstanding.
Certain of the Company's notes payable are collateralized by equipment
with a total cost of $22.0 million and accumulated depreciation of $7.4
million as of February 26, 1998.
8. Other Expense (Income), Net
Other expense in the second quarter of fiscal 1998 included $13.0
million of costs associated with the Company's actions to realign its
PC operations to concentrate on its core markets and customers. Such
actions include the consolidation of the Company's domestic and
international PC operations and the reduction of 10% of its workforce, or
approximately 450 employees, from generally all areas of the Company.
Costs associated with the realignment include employee termination benefits
of $6.7 million, the write-down of equipment and leasehold improvements and
the write-off of current technologies and other intangible assets as a
result of the consolidation of the Company's NetFRAME enterprise server
operations.
6
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements-Continued
(Tabular amounts in thousands)
</TABLE>
<TABLE>
<CAPTION>
9. Transactions with Affiliates
For the quarter ended For the six months ended
February 26, February 27, February 26, February 27,
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 10,373 $ 8,736 $ 17,838 $ 13,497
Inventory purchases 6,305 18,375 23,619 36,757
Component recovery
agreement expenses 6,589 9,677 14,941 15,461
Administrative services
and other expenses 643 233 911 475
Property, plant and
equipment purchases 314 383 577 529
Property, plant and
equipment sales 159 121 5,307 121
Construction management
services 9 79 110 624
</TABLE>
The above transactions with affiliates include those of MCMS up to
February 26, 1998.
10. Income Taxes
The provision for income taxes for the second quarter and first six
months of fiscal 1998 reflects the Company's effective tax rate of 39.5%,
principally the federal statutory rate and the net effect of state taxes,
plus $4.1 million for the write-off of a deferred tax asset relating to the
Company's consolidation of its NetFRAME enterprise server operation. The
effective tax rate of 38.5% in the first six months of fiscal 1997
principally reflected the federal statutory rate and the net effect of
state taxes.
11. Earnings Per Share
For the second quarter of fiscal 1998, the Company adopted SFAS No. 128,
"Earnings Per Share," which changed the standard for computing and
presenting earnings per share. Earnings per share for periods prior to the
second quarter of fiscal 1998 have been restated as required by SFAS 128.
Diluted earnings per share exludes the effect of antidilutive stock options.
A reconciliation of the income available to common shareholders and number of
common shares outranding follows:
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
February 26, February 27, February 26, February 27,
1998 1997 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income available to
common shareholders:
Net income used for both
basic and dilutive
earnings per share $ 24,765 $ 27,839 $ 25,830 $ 52,651
========= ========= ========= =========
Common shares
outstanding:
Denominator for basic
earnings per share -
weighted average shares 95,622 92,988 95,587 92,726
Effect of dilutive
employee stock options 113 642 211 548
--------- --------- --------- ---------
Denominator for diluted
earnings per share -
adjusted weighted
average shares and
assumed conversions 95,735 93,630 95,798 93,274
========= ========= ========= =========
</TABLE>
7
<PAGE>
Micron Electronics, Inc.
Notes to Financial Statements-Continued
(Tabular amounts in thousands)
12. Commitments
As of February 26, 1998, the Company had commitments of $13.6 million
for equipment purchases and $0.8 million for construction of buildings. In
addition, the Company is required to make minimum royalty payments under
certain agreements and periodically enters into purchase commitments with
certain suppliers.
13. Contingencies
Periodically, the Company is made aware that technology used by the
Company may infringe on intellectual property rights held by others. The
Company has accrued a liability and charged operations for the estimated
costs of settlement or adjudication of asserted and unasserted claims for
alleged infringement prior to the balance sheet date. Resolution of these
claims could have a material adverse effect on future results of operations
and could require changes in the Company's products or processes.
During fiscal 1997, the Company began to collect and remit applicable
sales or use taxes in nearly all states. In association therewith, the
Company is party to agreements with nearly all states which generally limit
the liability of the Company, if any, for non-remittance of sales and use
taxes prior to such agreements' effective dates. Management believes the
resolution of any matters relating to the non-remittance of sales or use
taxes prior to the balance sheet date will not have a material adverse
effect on the Company's business and results of operations.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion contains trend information and other forward-
looking statements that involve a number of risks and uncertainties. The
Company's actual results could differ materially from the Company's
historical results of operations and those discussed in the forward-looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those identified in "Certain Factors" and
in other Company filings with the Securities and Exchange Commission. All
quarterly references are to the Company's fiscal periods ended February 26,
1998, August 28, 1997 or February 27, 1997, unless otherwise indicated.
All tabular dollar amounts are stated in thousands.
Overview
Micron Electronics, Inc. and its subsidiaries (collectively, the
"Company") manufacture electronic products and provide services for a wide
range of computer and digital applications. The Company is a leading
provider of PC systems and network servers through the direct sales channel
in the United States and develops, markets, manufactures and supports PC
systems for consumer, business, education and government use. The
Company's SpecTek semiconductor memory products operation processes and
markets various grades of memory products under the SpecTek brand name.
The Company is majority owned by Micron Technology, Inc ("MTI").
Results of Operations
Net income for the second quarter of fiscal 1998 was $24.8 million, or
$0.26 per diluted share, on net sales of $494.8 million compared to net
income of $27.8 million, or $0.30 per diluted share, on net sales of $510.3
million for the second quarter of fiscal 1997. Net income for the first
six months of fiscal 1998 was $25.8 million, or $0.27 per diluted share, on
net sales of $1,053.7 million compared to net income of $52.7 million, or
$0.56 per diluted share, on net sales of $931.3 million for the first six
months of fiscal 1997.
On February 26, 1998, the Company completed the sale of 90% of its
interest in MCMS, Inc. ("MCMS"), formerly Micron Custom Manufacturing
Services, Inc. and a wholly-owned subsidiary of the Company. The sale was
structured as a recapitalization of MCMS (the "Recapitalization"), whereby
Cornerstone Equity Investors IV, L.P. ("Cornerstone"), other investors and
certain members of MCMS' management, including Robert F. Subia, then a
director of the Company, acquired the 90% interest in MCMS. In exchange
for the 90% interest in MCMS, the Company received $249.2 million in cash.
Results of operations in the second quarter of fiscal 1998 include a pre-
tax gain of $156.2 million ($94.5 million or $0.99 per diluted share, after
taxes) realized from the sale. The Company's financial statements for the
second quarter of fiscal 1998 include the results of MCMS' operation for
that period. Subsequent to the Recapitalization of MCMS, the Company owned
a 10% interest in MCMS which is accounted for by the Company on the cost
basis. Accordingly, results of operations of MCMS subsequent to February
26, 1998 will be excluded from the Company's results of operations.
Results of the Company's operations for the second quarter of fiscal 1998
also include significant operating losses from the Company's PC operation.
Selling prices for the Company's notebook products in the second quarter of
fiscal 1998 decreased to a level below the Company's cost. In addition,
the Company wrote down the value of notebook PC inventories which the
Company purchased as a result of an overly aggressive forecast. In
February 1998, the Company announced it had taken several actions to
realign the Company to concentrate on its core markets and customers,
including the consolidation of its domestic and international operations
and the reduction of approximately 10% of its workforce. As a result, the
operating loss in the second quarter of fiscal 1998 includes a charge of
$13.0 million for employee severance costs and other costs to consolidate
the Company's PC operations.
9
<PAGE>
Net Sales
The following table summarizes the Company's net sales by product line:
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------ -------------------------------------
1998 1997 1998 1997
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PC systems $ 403,044 81.4% $ 409,578 80.3% $ 862,084 81.8% $ 755,485 81.1%
Contract manufacturing 71,522 14.5% 71,377 14.0% 141,723 13.5% 123,134 13.2%
SpecTek memory products 20,194 4.1% 29,319 5.7% 49,843 4.7% 52,673 5.7%
--------- ------ --------- ------ ---------- ------ --------- ------
Total net sales $ 494,760 100.0% $ 510,274 100.0% $1,053,650 100.0% $ 931,292 100.0%
========= ====== ========= ====== ========== ====== ========= ======
</TABLE>
Personal Computer Systems Net sales of PC systems were lower in the
second quarter of fiscal 1998 compared to the second quarter of fiscal 1997
primarily as a result of an 11% decrease in average selling prices for the
Company's PC systems, partially offset by a 7% increase in unit sales of PC
systems. Net sales of PC systems were higher in the first six months of
fiscal 1998 compared to the first six months of fiscal 1997 primarily as a
result of a 20% increase in unit sales of PC systems and an increase in non-
system revenue, partially offset by a 10% decrease in average selling
prices for the Company's PC systems. Net sales of PC systems were 12%
lower in the second quarter of fiscal 1998 compared to the first quarter of
fiscal 1998 primarily as a result of a 10% decrease in unit sales of PC
systems and a lower level of decline in non-system revenue.
Sales to governmental entities, including prime contractors under certain
federal government procurement programs, were 15%, 28% and 16% of total net
sales of PC systems in the second quarter and first quarter of fiscal 1998
and second quarter of fiscal 1997, respectively. The level of the
Company's governmental sales is dependent on the buying practices of
governmental entities and the Company's participation in government
contracts in the future, of which there can be no assurance. As a result,
the level of such sales may vary from quarter to quarter and a significant
decline could have a material adverse effect on the Company's business and
results of operations. In particular, the Company is a supplier to a prime
contractor to the U.S. Air Force under the Desktop V contract. The
Company's sales under this contract represented 1.5% and 5.1% of total
revenues from sales of PC systems in the second quarter and first six
months of fiscal 1998, respectively. The Desktop V contract expires in
April 1999.
Unit sales of notebook systems were 15% and 14% of total unit sales of PC
systems during the second quarter and first six months of fiscal 1998,
respectively, compared to 10% and 9% in the corresponding periods in 1997.
Average selling prices for the Company's notebook products were 19% and 23%
lower in the second quarter and first six months of fiscal 1998,
respectively, compared to the corresponding periods in fiscal 1997
primarily as a result of extremely intense price competition in the PC
industry for notebook products.
Contract Manufacturing Revenues from the Company's MCMS operation were
relatively flat in the second quarter of fiscal 1998 compared to both the
first quarter of fiscal 1998 and the second quarter of fiscal 1997, but
were 15% higher in the first six months of fiscal 1998 compared to the
first six months of fiscal 1997. Higher production volumes in the second
quarter of fiscal 1998 compared to the second quarter of fiscal 1997 were
essentially offset by the effect on net sales of a shift toward and the
decline in pricing for memory intensive products. For the first six months
of fiscal 1998 compared to the first six months of fiscal 1997, the effect
of higher production volumes exceeded the effect of declines in pricing for
memory intensive products. Higher production volumes were achieved through
the acquisition and utilization of additional manufacturing equipment and
the upgrade of existing equipment at MCMS' contract manufacturing
facilities. The Company completed the sale of 90% of its interest in MCMS
on February 26, 1998.
10
<PAGE>
SpecTek Semiconductor Memory Products Net sales of semiconductor memory
products were 31% and 5% lower in the second quarter and first six months
of fiscal 1998, respectively, compared to the corresponding periods in
fiscal 1997, primarily due to a significant decline in average selling
prices partially offset by an increase in megabits of memory shipped.
Average selling prices in the second quarter and first six months of fiscal
1998 were 61% and 48% lower, respectively, compared to the second quarter
and first six months of fiscal 1997, while megabits of memory shipped in
the second quarter and first six months of fiscal 1998 were 78% and 83%
higher compared to the corresponding periods in fiscal 1997. The increase
in megabits of memory shipped was primarily due to reduced component test
times which resulted in increased throughput for substantially all memory
products. During the first quarter of fiscal 1998, the Company began to
transition production to Synchronous DRAM ("SDRAM") products, but net sales
of SDRAM memory products in the second quarter of fiscal 1998 represented
only 6% of total SpecTek sales of semiconductor memory products. The
Company anticipates significant downward pressure on prices for future
sales of semiconductor memory products. The Company's SpecTek
semiconductor memory products results of operations are influenced by a
number of factors including pricing for, and availability of, nonstandard
semiconductor memory components. See "Certain Factors-SpecTek
Semiconductor Memory Products Operation."
Historically, a substantial majority of the semiconductor components used
in the Company's SpecTek semiconductor memory products operation has been
obtained from MTI. In the second quarter and first six months of fiscal
1998, the Company obtained 74% and 67%, respectively, of its components
from MTI, compared to 81% and 77%, respectively, in the corresponding
periods in fiscal 1997. In the first six months of fiscal 1998, the
SpecTek semiconductor memory products operation obtained nearly 100% of its
components from three sources, including MTI. Purchases from sources other
than MTI are generally negotiated on a purchase order basis. There can be
no assurance the Company will be able to negotiate future purchases from
sources other than MTI on terms acceptable to the Company. Unless the
Company is able to continue obtaining significant quantities of nonstandard
semiconductor memory components from alternative sources, the Company's
SpecTek semiconductor memory products operation could be limited by the
volume of components supplied by MTI. Any reduction in the availability or
functionality of nonstandard semiconductor memory components from the
Company's suppliers could have a material adverse effect on the Company's
business and results of operations. See "Certain Factors-SpecTek
Semiconductor Memory Products Operation-Dependence on Component Recovery
Agreement with MTI and -Memory Product Transition."
Gross Margin
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------ ------------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- -----------------
% of % of % of % of
Amount Sales Amount Sales Amount Sales Amount Sales
-------- ----- -------- ----- -------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PC systems $ (6,262) (1.6%) $ 72,072 17.6% $ 52,616 6.1% $ 140,102 18.5%
Contract manufacturing 7,507 10.5% 9,401 13.2% 17,598 12.4% 15,981 13.0%
SpecTek memory products 3,213 15.9% 10,142 34.6% 11,458 23.0% 15,982 30.3%
-------- -------- -------- ---------
Total gross margin $ 4,458 0.9% $ 91,615 18.0% $ 81,672 7.8% $ 172,065 18.5%
======== ======== ======== =========
</TABLE>
Personal Computer Systems The significant reduction in gross margins
from sales of PC systems in the second quarter of fiscal 1998 was
principally attributable to a decline in average selling prices of the
Company's notebook products. The Company's purchases of notebook products
from third party suppliers have required volume and price commitments with
long lead times. During the first and second quarters of fiscal 1998, the
Company entered into arrangements to purchase notebook products at
committed prices. As a result of the precipitous decline in industry-wide
pricing for notebook products, the Company's selling prices for notebook
products in the second quarter of fiscal 1998 declined to a level
significantly below the Company's cost. As a result, the Company realized
significant losses on notebook products sold during the second quarter of
fiscal 1998 and wrote down the value of inventories to their current market
value.
The gross margin realized from sales of desktop products decreased
significantly in the second quarter of fiscal 1998 compared to the second
quarter of fiscal 1997 due primarily to the effect of relatively higher
levels of inventory. As a result of these higher levels of inventory, the
Company was unable to realize the effect of component cost reductions.
The Company expects to continue experiencing significant pressure on
gross margins on sales of its PC systems as a result of intense price
competition in the PC industry and consumer expectations of more powerful
PC systems at lower prices. In addition, the Company's gross margin
percentage will depend in large part on its ability to effectively forecast
demand and manage its inventories of PC components. See "Certain
Factors-Personal Computer Systems-Competition in the PC Industry" and
"Certain Factors-Personal Computer Systems-Inventory Management."
11
<PAGE>
Contract Manufacturing The gross margin percentage realized from the
Company's MCMS operation was lower in the second quarter of fiscal 1998
compared to the second quarter of fiscal 1997 primarily as a result of a
decrease in the overall complexity of the printed circuit board assemblies
produced and an increase in revenues derived from turnkey assembly
services.
SpecTek Semiconductor Memory Products The gross margin percentage
realized by the Company's SpecTek semiconductor memory products operation
was lower in the second quarter and first six months of fiscal 1998
compared to the second quarter and first six months of fiscal 1997
primarily due to significantly lower average selling prices. Average
selling prices for the Company's SpecTek semiconductor memory products were
61% lower in the second quarter of fiscal 1998 compared to the
corresponding period in 1997 and 38% lower compared to the first quarter of
fiscal 1998. The Company expects average selling prices for its SpecTek
semiconductor memory products to continue to decline. As a result, the
gross margin for the Company's SpecTek semiconductor memory products
operation could decline further and adversely affect the Company's business
and results of operations. See "Certain Factors-SpecTek Semiconductor
Memory Products Operation-Pricing of Semiconductor Memory Products."
Selling, General and Administrative
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------------- --------------------------
1998 Change 1997 1998 Change 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative $ 91,938 89.9% $ 48,420 $164,196 82.6% $ 89,899
as a % of net sales 18.6% 9.5% 15.6% 9.7%
</TABLE>
Selling, general and administrative expenses ("SG&A") were higher in the
second quarter and first six months of fiscal 1998 compared to the
corresponding periods in 1997 primarily as a result of higher levels of
personnel, advertising and other costs associated with the Company's PC
operation. SG&A expenses in the first six months of fiscal 1998 include
costs associated with the Company's Japan PC call center operation opened
in the second quarter of fiscal 1997 and the Company's NetFRAME enterprise
server operation acquired in the fourth quarter of fiscal 1997.
Other Expense (Income), net
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------------- --------------------------
1998 Change 1997 1998 Change 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Other expense
(income), net $ 19,196 n/a ($903) $ 21,003 n/a ($2,556)
</TABLE>
Other expense in the second quarter of fiscal 1998 included $13.0
million of costs associated with the Company's actions to realign its
PC operations to concentrate on its core markets and customers. Such
actions include the consolidation of the Company's domestic and
international PC operations and the reduction of 10% of its workforce, or
approximately 450 employees, from generally all areas of the Company.
Costs associated with the realignment include employee termination benefits
of $6.7 million, the write-down of equipment and leasehold improvements and
the write-off of current technologies and other intangible assets as a
result of the consolidation of the Company's NetFRAME enterprise server
operations. In addition, other operating expense for the first six months
of 1998 included $5.2 million for the write-off of abandoned in-development
software projects.
Research and Development
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------------- --------------------------
1998 Change 1997 1998 Change 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Research and
development $ 3,759 263.5% $ 1,034 $ 7,341 282.9% $ 1,917
as a % of net sales 0.8% 0.2% 0.7% 0.2%
</TABLE>
Research and development expenses were higher in the second quarter of
fiscal 1998 compared to the second quarter of fiscal 1997 primarily as a
result of the development activities associated with the Company's NetFRAME
enterprise server operation. The Company expects its future research and
development expenses to be substantially lower as a percentage of net sales
as a result of the reduction in force and the consolidation of its NetFRAME
enterprise server operations.
12
<PAGE>
Income Tax Provision
<TABLE>
<CAPTION>
Second Quarter Six Months
-------------------------- --------------------------
1998 Change 1997 1998 Change 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax provision $ 23,011 37.3% $ 16,761 $ 23,707 (28.1%) $ 32,960
</TABLE>
The provision for income taxes for the second quarter and first six
months of fiscal 1998 reflects the Company's effective tax rate of 39.5%,
principally the federal statutory rate and the net effect of state taxes,
plus $4.1 million for the write-off of a deferred tax asset relating to the
Company's consolidation of its NetFRAME enterprise server operation. The
effective tax rate of 38.5% in the first six months of fiscal 1997
principally reflected the federal statutory rate and the net effect of
state taxes.
Liquidity and Capital Resources
As of February 26, 1998, the Company had cash and equivalents of $341.1
million, representing an increase of $157.1 million compared to August 28,
1997. Principal sources of liquidity in the first six months of fiscal
1998 were $235.9 million of net proceeds realized from the sale of 90% of
the Company's interest in MCMS, formerly a wholly-owned subsidiary of the
Company, and $5.8 million from sales of property, plant and equipment.
Principal uses of cash in the first six months of fiscal 1998 were
property, plant and equipment expenditures of $44.5 million for expansion
and capacity improvements of the Company's manufacturing operations, $33.5
million for operating activities and $6.3 million for the repayment of
debt.
The Company has an unsecured revolving credit facility, expiring June
2000, with a group of financial institutions which provides for borrowings
of up to $130.0 million. Under the agreement, the Company is subject to
certain financial and other covenants including certain financial ratios
and limitations on the amount of dividends declared or paid by the Company.
For the quarter ended February 26, 1998, the Company was in violation of
its ratio of debt to earnings before interest, taxes, depreciation and
amortization ("EBITDA") covenant, as calculated under the terms of the
agreement, which excludes the effect of the gain from the sale of MCMS.
The Company obtained a waiver for the violation of such covenant. As a
result, as of February 26, 1998, the Company was eligible to borrow
approximately $30 million under the agreement, but had no borrowings
outstanding.
The Company's wholly-owned subsidiary, Micron Electronics Japan K.K., has
an unsecured revolving credit facility with a financial institution,
expiring June 1998, providing for borrowings of up to 1.5 billion Japanese
yen (US$11.7 million at February 26, 1998). As of February 26, 1998, the
Company was eligible to borrow the full amount under the agreement and had
US$8.6 million outstanding.
On October 11, 1996, the Company filed a registration statement with the
Securities and Exchange Commission allowing for the issuance from time to
time by the Company of debt and/or equity securities with a value of up to
$75.0 million, of which $51.0 million has been issued.
As of February 26, 1998, the Company had commitments of $14.4 million for
capital expenditures for expansion and upgrade of facilities and equipment.
The Company anticipates making capital expenditures in fiscal 1998 in
excess of $70 million. The Company is constructing an approximately
325,000 square foot facility in Nampa, Idaho. This new facility is
expected to provide space for the expansion of the Company's Nampa, Idaho
PC operation and will provide space for possible future expansion.
The Company expects that its future working capital requirements will
continue to increase. The Company believes that currently available cash
and cash equivalents, cash flows from operations, the Company's current
credit facilities and equipment financings will be sufficient to fund its
operations through fiscal 1998. However, maintaining an adequate level of
working capital through the end of fiscal 1998 and thereafter will depend
in large part on the success of the Company's products in the marketplace
and the Company's ability to control inventory levels, component costs and
other operating expenses. The Company may require additional financing for
growth opportunities, including any internal expansion that the Company may
undertake, expansion and capacity enhancements to additional sites, or
strategic acquisitions or partnerships. There can be no assurance that any
financing will be available on terms acceptable to the Company, if at all.
13
<PAGE>
Certain Factors
In addition to factors discussed elsewhere in this Form 10-Q and in other
Company filings with the Securities and Exchange Commission, the following
are important factors which could cause actual results or events to differ
materially from the historical results of the Company's operations or those
results or events contained in any forward-looking statements made by or on
behalf of the Company.
General
Fluctuations in Operating Results and Stock Price
The Company's past operating results have been, and its future operating
results may be, subject to seasonality and other fluctuations, on a
quarterly and an annual basis, as a result of a wide variety of factors,
including, but not limited to, industry competition, the Company's ability
to accurately forecast demand for its PC products, fluctuating market
pricing for PCs and semiconductor memory products, the Company's ability to
effectively manage inventory levels, the lead time and inventory exposure
from shipments of products from OEM suppliers, fluctuating component costs,
changes in product mix, inventory obsolescence, the timing of new product
introductions by the Company and its competitors, availability and pricing
of the memory components used by the Company's SpecTek semiconductor memory
products operation, seasonal government purchasing cycles, manufacturing
and production constraints, the effects of product reviews and industry
awards, seasonal cycles common in the PC industry and critical component
availability. As a result, the operating results for any particular period
are not necessarily indicative of the results that may occur in any future
period. The trading price of the common stock of the Company is subject to
significant fluctuations due to general market conditions and financial
performance of the Company, MTI and other companies in the PC industry,
announcements of technological innovations, new commercial products or new
strategies by competitors, component availability and pricing or other
factors.
Management
Historically, the Company has experienced expansion in the number of its
employees, in the breadth and complexity of its management, in operating
and financial information systems and in its geographic scope of
operations. These expansions have resulted in new and increased
responsibilities for the Company's management and has placed, and continues
to place, significant demands upon the Company's management, operating and
financial information systems and other resources and systems. The Company
recently reduced its workforce by approximately 10%. There can be no
assurance that such action will not place a strain on the Company's
operation, which could have a material adverse effect on the Company's
business and results of operations. The Company continues to consider
various expansion alternatives, including expansion of facilities,
acquisition or establishment of facilities in new geographic regions and
certain strategic relationships. While the Company recently recruited five
new executives, there can be no assurance that the Company's management
resources, operating and financial information systems and other resources
and systems will be adequate to support the Company's existing or future
operations, the failure of which could have a material adverse effect on
the Company's business and results of operations.
Intellectual Property Matters
It is common in the electronics industry for patent, trademark and other
intellectual property rights claims to be asserted against companies,
including component suppliers and PC manufacturers. Periodically, the
Company is made aware that technology used by the Company may infringe on
intellectual property rights held by others. The Company evaluates all
such claims and, if necessary and appropriate, seeks to obtain licenses for
the continued use of such technology. The Company has accrued a liability
and charged operations for the estimated costs of settlement or
adjudication of asserted and unasserted claims for alleged infringement
prior to the balance sheet date. The Company would be placed at a
competitive disadvantage if it were unable to obtain such licenses upon
terms at least as favorable as those experienced by the Company's
competitors. The Company has entered into several intellectual property
license agreements, which generally require one-time or periodic royalty
payments and are subject to expiration at various times. The Company is
unable to predict whether any of these license agreements can be obtained
or renewed on terms acceptable to the Company. If the Company or its
suppliers are unable to obtain licenses necessary to use intellectual
property in their products or processes, the Company may be forced to
market products without certain technological features or software,
discontinue sales of certain of its products and/or defend legal actions
taken against it relating to allegedly protected technology. The inability
of the Company to obtain licenses necessary to use certain technology, or
an inability to obtain such licenses on competitive terms, or any
litigation determining that the Company, in the manufacture or sale of its
products, has infringed on the intellectual property rights of third
parties could have a material adverse effect on the Company's business and
results of operations.
14
<PAGE>
The Company, as a majority-owned subsidiary of MTI, is licensed under
certain license agreements between MTI and third parties. The Company
makes payments to MTI relating to certain of such agreements. The
Company's rights under such agreements may be terminated by MTI in the
event that the Company is no longer a majority-owned subsidiary of MTI. In
the event of any such termination, the inability of the Company
independently to obtain such rights on similar terms could have a material
adverse effect on the Company's business and results of operations.
MTI Ownership of Common Stock of the Company
As of February 26, 1998, MTI owned 64% of the Company's outstanding
common stock. In addition, four of the seven directors of the Company are
also directors of MTI, including Steven R. Appleton, Chairman and Chief
Executive Officer of MTI. So long as MTI continues to own a majority of
the outstanding common stock of the Company, MTI will have the ability to
control the outcome of matters requiring shareholder approval, including
the election of directors, and generally will have the ability to control
the management and certain financial and other affairs of the Company.
Termination or modification of certain of the Company's arrangements with MTI
resulting in terms less favorable to the Company could adversely affect the
Company's business and results of operations. In the event that MTI's
ownership of the Company were to decrease below certain levels, certain
arrangements may be terminated by MTI, which could have a material adverse
effect on the Company's business and results of operations. See
"Intellectual Property Matters" and "SpecTek Semiconductor Memory Products
Operation-Dependence on Component Recovery Agreement."
The level of MTI's ownership of the common stock of the Company may limit
the Company's ability to complete future equity financings. In addition,
the sale on the open market of substantial amounts of shares of common
stock of the Company currently held by MTI could adversely affect the
prevailing market price of common stock of the Company. MTI's ability to
sell shares of common stock of the Company, unless registered under the
Securities Act of 1933, as amended (the "Securities Act"), is subject to
volume and other restrictions pursuant to Rule 145 promulgated under the
Securities Act.
On October 11, 1996, the Company filed a registration statement with the
Securities and Exchange Commission allowing for the issuance from time to
time by the Company of debt and/or equity securities with a value of up to
$75.0 million, of which $51.0 million has been issued. The registration
statement also allows for an additional $250.0 million of outstanding
common stock of the Company to be sold by certain existing shareholders,
consisting of MTI and certain management employees, of which $212.9 million
has been sold.
Dependence on Key Personnel
The future success of the Company will depend, in part, on its ability to
attract and retain key management, technical and sales and marketing
personnel. The Company attempts to enhance its management and technical
expertise by recruiting qualified individuals who possess desired skill
sets and experience in certain targeted areas. There is competition for
such personnel in the electronics industries, and the Company's inability
to retain employees and attract and retain sufficient additional employees,
particularly in the areas of information technology, engineering and
technical support resources, could have a material adverse effect on the
Company's business and results of operations. The Company does not
currently maintain "key man" life insurance with respect to any of its
employees. There can be no assurance that the Company will not lose key
personnel or that the loss of any key personnel will not have a material
adverse effect on the Company's business and results of operations.
Year 2000
Some computer software and hardware systems will require modification in
order to remain fully operational after January 1, 2000. The Company is in
the process of assessing the readiness of its internal computer systems and
the systems of its key subcontractors and suppliers relative to the year
2000, as well as the readiness of its computer systems sold to customers.
The Company expects to successfully implement modifications to its systems
necessary to address year 2000 issues relating to its internal computer
systems, and does not believe that the cost of such actions will have a
material adverse effect on the Company's results of operations or financial
condition. However, there can be no assurance that interruption of the
Company's internal computer systems or systems of its subcontractors and
suppliers will not occur or that the Company will not incur substantial
costs to implement necessary changes to such systems. Although the Company
does not anticipate incurring significant costs to modify computer systems
sold to customers, there can be no assurance that significant costs will
not be incurred. If the Company incurred substantial costs to implement
necessary changes to its internal computer systems or in connection with
any interruption of the Company's internal computer systems, there could
be a material adverse effect on the Company's business and results of
operations.
15
<PAGE>
Government Regulation
The Company is subject to a variety of federal, state, local and foreign
laws and regulations, including, but not limited to, Federal Communications
Commission regulations, governmental procurement regulations, import and
export regulations, Federal Trade Commission regulations, securities
regulations, environmental regulations, antitrust regulations, and labor
regulations. Any failure by the Company to comply with such regulations in
the past, present or future could subject the Company to liabilities and/or
the suspension of its operations, which could have a material adverse
effect on the Company's business and results of operations.
Personal Computer Systems
Competition in the PC Industry
The PC industry is highly competitive and has been characterized by
intense pricing pressure, generally low gross margin percentages, rapid
technological advances in hardware and software, frequent introduction of
new products, and rapidly declining component costs. Competition in the PC
industry is based primarily upon brand name recognition, performance,
price, reliability and service and support. As a result of PC industry
standards, the Company and its competitors use many of the same components,
typically from the same set of suppliers, which limits the Company's
ability to technologically and functionally differentiate its products.
The Company's sales of PC systems has historically benefited from increased
name recognition and market acceptance of the Company's PC systems,
primarily resulting from the receipt by the Company of awards from trade
publications recognizing the price and performance characteristics of
Micron brand PC systems and the Company's service and support functions.
The Company competes with a number of PC manufacturers which sell their
products primarily through direct channels, including Dell Computer, Inc.
and Gateway 2000, Inc. The Company also competes with PC manufacturers,
such as Apple Computer, Inc., Compaq Computer Corporation, Hewlett-Packard
Company, International Business Machines Corporation, NEC Corporation and
Toshiba Corporation among others, which have traditionally sold their
products through national and regional distributors, dealers and value
added resellers, retail stores and direct sales forces. In addition, the
Company expects to face increased competition in the U.S. direct sales
market from foreign PC suppliers and from foreign and domestic suppliers of
PC products that decide to implement, or devote additional resources to, a
direct sales strategy. In order to gain an increased share of the United
States PC direct sales market, these competitors may effect a pricing
strategy that is more aggressive than the current pricing in the direct
sales market. Many of the Company's PC competitors have greater brand name
recognition, offer broader product lines, have substantially greater
financial, technical, marketing and other resources than the Company and
may benefit from component volume purchasing and product and process
technology license arrangements that are more favorable in terms of pricing
and availability than the Company's arrangements. The failure of the
Company to compete effectively in the marketplace could have an adverse
effect on the Company's business and results of operations.
The Company believes that the rate of growth in worldwide sales of PC
systems, particularly in the United States, where the Company sells a
substantial majority of its PC systems, has declined and may remain below
the growth rates experienced in recent years. Any general decline in
demand or decline in the rate of increase in demand for PC systems could
increase price competition and could have a material adverse effect on the
Company's business and results of operations.
Inventory Management
The Company's ability to compete successfully in the PC market in the
future will depend in large part on its ability to accurately forecast
demand for its PC products and effectively manage its PC inventories. The
Company's PC operations focus on the direct sale of assemble-to-order PC
systems that feature components incorporating the latest technological
developments in the PC industry. The Company has experienced in the past,
and could experience in the future, excess PC inventories and inventory
obsolescence resulting from, among other things, the Company's accuracy in
forecasting demand for its PC products, the fast pace of technological
developments in the PC industry and the short product life cycles of PC
systems and components. In particular, the Company wrote down the value of
its notebook inventories to then market values in the second quarter of
fiscal 1998 as a result of an overly aggressive forecast. In addition,
because high volumes of quality components are required for the manufacture
of the Company's PC systems, the Company has experienced in the past, and
expects to experience in the future, shortages and other supply constraints
of key components. Such shortages or supply constraints have in the past
adversely affected, and could in the future adversely affect, the Company's
ability to ship products on schedule or at expected gross margins. To be
successful in the future, the Company must accurately forecast demand for
its PC products and obtain adequate, but not excessive, supplies of
components to meet actual demand. The failure of the Company to manage its
inventories effectively could result in excess PC inventories, inventory
obsolescence, component shortages and untimely shipment of products, any of
which could have a material adverse effect on the Company's business and
results of operations.
16
<PAGE>
Dependence on Key Sources of Supply
The Company focuses on providing PC systems that feature components and
software incorporating the latest technological developments in the PC
industry, which components are periodically in short supply and are
available from sole or a limited number of suppliers. As a result, the
Company has experienced in the past, and expects to experience in the
future, shortages in the components used in its PC systems. The
microprocessors used in the Company's PC systems are manufactured
exclusively by Intel and, from time to time, the Company has been unable to
obtain sufficient quantities of certain Intel microprocessors. In
addition, a significant portion of the RAM components used in the Company's
PC systems are supplied by MTI, and the Company generally relies on MTI to
supply the latest memory densities and configurations available. The
Company relies, to a certain extent, upon its suppliers' abilities to
enhance existing products in a timely and cost-effective manner, to develop
new products to meet changing customer needs and to respond to emerging
standards and other technological developments in the PC industry. The
Company's reliance on a limited number of suppliers and on a strategy of
incorporating the latest technological developments into its PC systems
involves several risks, including the possibility of shortages and/or
increases in costs of components and software, and risk of reduced control
over delivery schedules, which could have a material adverse effect on the
Company's business and results of operations.
The Company's notebook PC systems are currently assembled by third-party
manufacturers. These outsourcing arrangements and any future outsourcing
arrangements that the Company may enter into may reduce the direct control
the Company has over certain components and the assembly of such products.
There can be no assurance that the Company's outsourcing arrangements will
not result in quality problems or affect the Company's ability to ship such
products on a timely basis or the flexibility of the Company to respond to
changing market conditions. Moreover, although arrangements with such
manufacturers may contain provisions for warranty obligations on the part
of such manufacturers, the Company remains primarily responsible to the
consumer for warranty obligations. Any unanticipated product defect or
warranty obligation, whether pursuant to arrangements with third-party
manufacturers or otherwise, could adversely affect the Company's business
and results of operations.
State Taxation
During fiscal 1997, the Company began to collect and remit applicable
sales or use taxes in nearly all states. In association therewith, the
Company is party to agreements with nearly all states which generally limit
the liability of the Company, if any, for non-remittance of sales and use
taxes prior to such agreements' effective dates. Management believes the
resolution of any matters relating to the non-remittance of sales or use
taxes prior to the balance sheet date will not have a material adverse
effect on the Company's business and results of operations.
SpecTek Semiconductor Memory Products Operation
Dependence on Component Recovery Agreement with MTI
Historically, a substantial majority of the components used in the
Company's SpecTek semiconductor memory products operation has been obtained
from MTI. The Company and MTI are parties to a Component Recovery
Agreement, effective as of August 30, 1996 (the "Component Recovery
Agreement"), under which MTI is required to deliver to the Company all of
the nonstandard memory components produced at MTI's semiconductor
manufacturing operations. The Company's cost of such components generally
is determined as one-half of the operating income generated from the
Company's SpecTek sales of semiconductor memory products supplied by MTI.
The Component Recovery Agreement, which expires on September 2, 1999, may
be terminated by MTI in the event that MTI's ownership of the Company falls
below 30%. Expiration, termination or renegotiation of the Component
Recovery Agreement could have a material adverse effect on the Company's
business and results of operations.
MTI is in the process of transitioning its semiconductor memory
operations toward SDRAM from EDO memory products and toward 64 Meg from 16
Meg densities. The Company is unable to predict the impact these
transitions will have on the volume or grade of nonstandard memory
components supplied by MTI. Other changes in MTI's semiconductor
manufacturing processes resulting in improvement of device yields and/or
changes in the product mix or specifications of its memory components, or
other changes or events at MTI adversely affecting its overall
manufacturing output, could adversely affect the volume of nonstandard
memory components supplied by MTI. There can be no assurance that MTI will
continue to produce adequate volumes of nonstandard memory components to
maintain the Company's SpecTek semiconductor memory products operation at
existing or historic levels.
17
<PAGE>
Many semiconductor memory manufacturers are reluctant to sell nonstandard
memory components because such components could compete with their full
specification memory components for similar applications. In addition,
some manufacturers are concerned that subsequent testing performed by a
recovery operation could reveal proprietary data regarding manufacturing
yields and processes. As a result, there can be no assurance that the
Company will be able to obtain nonstandard memory components from
semiconductor manufacturers in quantities sufficient to meet demand for the
Company's SpecTek products. Any reduction in the availability or
functionality of nonstandard memory components from the Company's suppliers
could have a material adverse effect on the Company's business and results
of operations.
Pricing of Semiconductor Memory Products
Pricing for the Company's SpecTek semiconductor memory products
fluctuates, to a large degree, based on industry-wide pricing for
semiconductor memory products. The Company has experienced significant
declines in the average selling prices of its SpecTek semiconductor memory
products as industry-wide average selling prices for full specification
semiconductor memory products experienced sharp declines. The Company
believes that such decline in average selling prices of semiconductor
memory products was due primarily to changes in the balance of supply and
demand for these commodity products, and the Company is unable to predict
the impact of semiconductor memory product market dynamics in future
periods. Due to increased market risk associated with holding purchased
memory components in inventory, the Company has experienced in the past,
and may experience in the future, losses from write-downs of memory
component inventories in periods of declining prices. Further declines in
pricing for semiconductor memory products would likely result in declines
in average selling prices of the Company's SpecTek semiconductor memory
products, which could have a material adverse effect on the Company's
business and results of operations.
Memory Product Transition
The semiconductor memory industry is characterized by, among other
things, rapid technological change, frequent product introductions and
enhancements, difficulties experienced in transitioning to new products,
relatively short product life cycles and volatile market conditions.
During the first quarter of fiscal 1998, SpecTek began to transition
production to Synchronous DRAM ("SDRAM") memory products. In addition, the
Company anticipates beginning the initial phase of its transition to 64 Meg
memory products. During periods of product transition, the Company's
SpecTek semiconductor memory products operation has experienced in the
past, and may experience in the future, significant increases in component
test times and corresponding decreases in throughput. Future gross margins
could be adversely affected if the Company is unable to effectively
transition to new products in a timely fashion.
18
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following are filed as a part of this report:
Exhibit Description
------- --------------------------------------------------------------
10.47 Form of Employment and Noncompete Agreement, with 12-month
termination provision, for certain officers of the Registrant
10.48 Form of Employment and Noncompete Agreement, with 6-month
termination provision, for certain officers of the Registrant
10.49 Addendum to Severance Agreement, dated January 23, 1998, by and
between the Company and T. Erik Oaas
10.50 Addendum to Severance Agreement, dated January 12, 1998, by and
between the Company and Gregory D. Stevenson
10.51 Termination Agreement, dated December 21, 1997, between the
Company and Robert F. Subia
10.52 Employment Offer, dated January 10, 1998, to Joel J. Kocher (1)
27 Financial Data Schedule
(1) Confidential treatment has been requested for certain portions of
this document. Such portions have been redacted and marked with a double
XX. The non-redacted version of this document has been sent to the
Securities and Exchange Commission pursuant to an application for
confidential treatment.
(b) Reports on Form 8-K:
On January 9, 1998, the Company filed a report on Form 8-K announcing it
had entered into an agreement with Cornerstone Equity Investors IV, L.P.
("Cornerstone"), to sell a 90% interest in the Company's wholly-owned
contract manufacturing subsidiary, Micron Custom Manufacturing Services,
Inc.
On January 22, 1998, the Company filed a report on Form 8-K announcing
the appointment of Joel J. Kocher as President of the Company.
On February 19, 1998, the Company filed a report on Form 8-K with an
amendment to the agreement with Cornerstone.
On March 13, 1998, the Company filed a report on Form 8-K announcing the
completion of the sale of 90% of its interest in MCMS, Inc., formerly
Micron Custom Manufacturing Services, Inc. and a wholly-owned subsidiary of
the Company, for $249.2 million in cash.
Micron and Micron Electronics are trademarks of the Company, and NetFRAME
and SpecTek are registered trademarks of the Company. All other product
names appearing herein are for identification purposes only and may be
trademarks of their respective companies.
19
<PAGE>
SIGNATURES
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 thereunto duly authorized.
MICRON ELECTRONICS, INC.
-----------------------------------------------
(Registrant)
Dated: March 20, 1998
/s/ T. Erik Oaas
-----------------------------------------------
T. Erik Oaas, Executive Vice President Finance,
and Chief Financial Officer (Principal
Financial and Accounting Officer)
20
<PAGE>
EXHIBIT 10.47
EMPLOYMENT AND NONCOMPETE AGREEMENT
This Employment and Noncompete Agreement ("Agreement") is by
and between Micron Electronics, Inc., a Minnesota corporation
(the "Company"), and__________________, an individual and officer of
the Company (the "Officer"), and is effective as of the last date
signed below.
WHEREAS, the parties recognize that it is in the best
interest of the Company to provide for a smooth transition when
there is a change in management, and wish to recognize the valued
contributions of the Officer; and
WHEREAS, the Company desires to provide the Officer with
benefits in consideration for his or her execution of this
Agreement;
NOW THEREFORE, the parties agree as follows:
1. Termination of the Officer. Either the Company or the
Officer may at any time terminate the Officer's active employment
with the Company for any reason, voluntary or involuntary, with
or without cause, by providing notice to that effect in writing.
The date such notice is received by the other party shall be
deemed the "Termination Date." Upon receipt by the Officer of a
notice of termination from the Company, and upon the Company's
request, the Officer will resign immediately as an Officer and/or
Director.
2. Effect of Termination. Effective on the Termination
Date, and for a period defined in Paragraph 2(a) (the "Transition
Period"), the Officer shall continue as an employee only for
purposes of receiving the benefits specified in Paragraph 3.
During the Transition Period, the Officer may continue in a
consulting role with the Company, or continue as a non-officer
employee with the Company, if both parties agree.
(a) Transition Period. For purposes of this
agreement, the "Transition Period" shall be twelve (12) months,
plus the amount of any TOP time and leave time, if any, which
the Officer has accrued as of the Termination Date.
(b) Change of Officer Status. In the event that
the Officer or the Company terminates the Officer's status as an
Officer of the Company but not as an employee, both parties agree
that such change in status will be treated as a termination for
purposes of this Agreement, and that the date of such change in
status will be deemed the Termination Date. Following the
Transition Period, the Officer shall be entitled only to such
compensation and benefits for his or her services as an employee
that may be mutually agreed upon between the Company and the
Officer. In no circumstance shall benefits under Paragraph 3 be
paid to an Officer for a period longer than the first Transition
Period created by a change of status or termination.
3. Benefits During Transition Period. Provided the
Officer complies with the terms of this Agreement, the Officer
will receive during the Transition Period all benefits
customarily provided to officers of the Company, including, but
not limited to salary, bonuses, Officer bonuses, and the
continued vesting of any granted stock options, as if the
Officer's employment as an officer had continued during that
period. "Customarily provided" refers to Company practices and
plans with respect to officer benefits and compensation in effect
as of the Termination Date. For purposes of this provision,
however, it will be understood that the Officer, during the
Transition Period, will not be entitled to any new grants of
interest in future Officer bonus pools, nor to any new grants of
stock options. It also is agreed and understood by Officer that,
with respect to any performance accelerated options, no
acceleration shall occur if the performance objectives attendant
to such options are satisfied during the Transition Period. It
will be further understood that the Officer will not be entitled
to payment of any compensation that is deferred past the
Transition Period due to payment criteria of an incentive
program, as those criteria existed as of the Termination Date.
No action by the Company or the Company's Board of Directors may
affect the Officer's receipt of the benefits set forth above,
other than as provided herein.
4. Agreement Not to Compete or Solicit. During such
time as the Officer is employed by the Company and upon the
Officer's termination, continuing throughout the Transition
Period, and in consideration of the benefits specified in
Paragraph 3 above and the terms and obligations of this
Agreement, Officer agrees as follows:
(a) Acknowledgment. Officer recognizes and
acknowledges that it is essential for the proper protection of
the Company and its business interests that the Officer be
restrained (a) from competing against the Company during the
Officer's employment and for a reasonable period following the
termination of the Officer's employment with the Company; (b)
from soliciting or inducing any officer or employee of the
Company to leave the employ of the Company; (c) from hiring or
attempting to hire any officer or employee of the Company; and
(d) from soliciting the trade of or trading with the customers
and suppliers of the Company for any business purpose. Officer
further recognizes and acknowledges that the Company's business
interests that require and justify protection include, without
limitation, trade secrets, confidential information, proprietary
information, customer or supplier information and lists,
accounts, knowledge and skill acquired with the Company, customer
or supplier relations, and avoiding unfair competition.
(b) Covenant Not to Compete. The Officer shall not
engage in competition with the Company, render advice or service
to any entity In Competition With the Company, or engage in any
other employment, occupation, consulting or other business
activity directly related to the business in which the Company
is now involved or becomes involved during the term of the
Officer's employment or during the Transition Period. The phrase
"In Competition With the Company" as used herein shall be deemed
to include competition with the Company or its respective
successors or assigns, or the businesses of any of them. A
person, firm, business, or other entity is In Competition With
the Company if it is engaged in the design, development,
manufacture, marketing, or sale of semiconductor memory products,
personal computers, servers, printed circuit boards, memory
modules, related personal computer peripheral equipment, or any
other business in which the Company, or any parent, subsidiary or
affiliate of the Company is currently engaged or becomes engaged
during the term of the Officer's employment or the Transition
Period, including any business which is substantially similar to
or competitive with any such business or products.
(c) Covenant of Non-Solicitation of Employees. The
Officer shall not directly or indirectly, personally or through
others, employ or solicit for employment, or advise or recommend
to any other person, firm, business or entity that they employ or
solicit for employment, any employee of the Company; provided,
however, that the Company shall not preclude the Officer from
giving an employment reference at the request of an employee of
the Company or at the request of a prospective employer of such
employee. The Officer shall not encourage, induce, attempt to
induce, solicit or attempt to solicit any employee of the
Company, or any parent, subsidiary or affiliate of the Company
to leave his or her employment with the Company, or any of
parent, subsidiary or affiliate of the Company.
(d) Covenant of Non-Interference or Solicitation or
Diversion of Business. The Officer shall not, directly or
indirectly, personally or through others, contact, solicit,
advise, encourage, induce, or consult any client, account, or
customer of the Company for the purpose or with the effect of
causing such client, account or customer to purchase, license or
otherwise obtain products or services from a person, firm,
business or entity In Competition With the Company. Similarly,
during the Period of Restriction, Officer shall not, directly or
indirectly interfere with the business relationship between the
Company and its customers, dealers, distributors, suppliers,
vendors, independent contractors, service providers, or other
parties with which the Company has business relationships, or
encourage or induce (or attempt to induce) any such party to
terminate its relationship with the Company, or to modify the
terms of such relationship in a manner adverse to the best
interests of the Company.
(e) Covenant of Non-Solicitation of Customers and
Suppliers. Officer agrees that during the Officer's time of
employment with the Company the Officer shall not, directly or
indirectly, personally or through others, solicit the trade of,
or trade with, any customer or prospective customer, or supplier
or prospective supplier of the Company for any business purpose
other than for the benefit of the Company. Officer further
agrees that during the Transition Period, Officer shall not,
directly or indirectly, personally or through others, solicit
the trade of, or trade with, any customers or suppliers, or
prospective customers or suppliers, of the Company.
(f) Acknowledgment of Reasonableness of Restrictions.
Officer specifically acknowledges and agrees that the covenants
and nature of the limitations upon Officer's activities as
specified herein, together with the duration and scope of such
covenants and restrictions, are reasonable limitations on
Officer's activities, and that the restrictions are required to
preserve, promote and protect the business interests and good-
will of the Company and impose no greater restraint than is
reasonably necessary to secure such protection.
(g) Interpretation of Covenants. In the event that
any covenant or the provisions of any covenant or restriction in
this Agreement shall be held invalid or unenforceable by a court
of competent jurisdiction for any reason, including, but not
limited to, the duration or scope thereof, such invalidity or
unenforceability shall attach only to the specific covenant or
provision determined to be unenforceable and the remaining
covenants or provisions of the specific covenant shall remain in
full force and effect for the greatest time period and for the
broadest scope permitted by applicable law. Officer and the
Company intend that each of the covenants shall be deemed to be
a series of separate covenants, one for each and every county of
each and every state of the United States of America, and one for
each and every political subdivision of each and every other
country where the covenants shall be effective.
5. Accounting for Profits. Officer covenants and agrees
that in the event Officer violates any of Officer's restrictions
or obligations under this Agreement the Company shall be entitled
to an accounting and payment of all profits, compensation,
commissions, remuneration or other benefits which Officer
directly or indirectly has received and/or may receive as a
result of growing out of or in connection with the violation of
any such restrictions or obligations. Officer and the Company
acknowledge and agree that such remedy shall be in addition to
and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law, in
equity or under this Agreement.
6. Indemnification. Without in any way limiting any other
rights or remedies otherwise available to the Company at law or
in equity. Officer shall hold harmless and indemnify the Company
from and against, and shall compensate and reimburse the Company
for, any loss, damage, injury, decline in value, lost
opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee (including reasonable
attorneys' fees) charge, cost (including costs of investigation)
or expense of any nature (collectively, the "Damages") which are
directly or indirectly suffered or incurred at any time by the
Company, or to which the Company otherwise becomes subject
(regardless of whether or not such Damages relate to a third
party claim), and that arise from or are directly or indirectly
connected with any breach of any covenant or obligation of
Officer contained herein.
7. Entitlement to Equitable Relief. Officer and the
Company acknowledge and agree that the breach by Officer of any
covenant, restriction or obligation under this Agreement will
cause the Company substantial, immediate and irreparable harm,
that the extent of damages will be difficult to measure, and,
consequently, there is not adequate remedy at law in the event of
such breach. Accordingly, the Company and Officer hereby agree
that the Company shall be entitled to injunctive relief, without
prejudice to any other right the Company may have in law or in
equity under this Agreement, by bringing an appropriate action
for such remedy in any court of competent jurisdiction which the
Company, in its sole discretion, deems appropriate.
8. Confidentiality. The parties agree that throughout the
Transition Period no statements regarding the Officer's
termination will be made other than to indicate that the reasons
for, and circumstances of, the termination are CONFIDENTIAL and
that both the Company, the Board of Directors, and the Officer
are obligated to make "no comment" regarding the termination.
For purposes of this paragraph, "statements" include, but are not
limited to, statements to the press, analysts, and journalists.
Nothing in this paragraph is meant to prevent the Company from
disclosing any facts required to be disclosed pursuant to statute
or regulation.
9. Termination. Notwithstanding the provisions of
paragraph 1, above, this Agreement automatically terminates when
the Officer turns sixty-five (65) years of age, and any
termination or change of status of the Officer after that date
will not entitle the Officer to any of the benefits of this
Agreement.
10. Release. Upon receipt of all benefits under this
Agreement, the Officer and Company settle, waive, and voluntarily
release any and all claims each has or may have against the
other, inclusive of any of the Company's affiliates, officers,
directors, employees or agents, both individually and in their
official capacities, which claims accrued prior to the end of the
Transition Period.
11. Restrictive Covenants. Officer represents and warrants
that the Officer's experience and capabilities are such that the
restrictive covenants set forth in this Agreement will not
prevent the Officer from earning a livelihood, and that Officer
will be fully able to earn and receive an adequate livelihood for
Officer and Officer's dependents if any of such provisions should
be specifically enforced against Officer.
12. Consent to Jurisdiction and Venue. Officer hereby
irrevocably submits to the jurisdiction of the United States
District Court for the District of Idaho, or the District Court
in and for the County of Canyon, State of Idaho, in any action or
proceeding arising out of or relating to this Agreement, and
Officer hereby irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in
either such court. Officer further irrevocably waives any
objection that Officer now or hereafter may have to the laying of
venue of any action or proceeding arising out of or relating to
this Agreement brought in either such court on the ground that
any such action or proceeding in either of such courts has been
brought in an inconvenient forum. Nothing in this paragraph
shall affect the right of the Company to bring any action or
proceeding against Officer or Officer's property in the courts of
other jurisdictions. Officer agrees that a final judgment in any
such action or proceeding shall to the extent permitted by
applicable law be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by applicable law related to the enforcement of
judgments.
13. Employer Violation Not A Defense. The existence or
allegation of any claims or causes of action of the Officer
against the Company shall not constitute a defense to the
enforcement by the Company of the covenants or obligations
contained in this Agreement.
14. Covenants of the Essence. The covenants of the Officer
set forth herein are of the essence of this Agreement; they shall
be construed as independent of any other provision in this
Agreement; and the existence of any claim or cause of action of
the Officer against the Company, whether predicated on this
Agreement or not, shall not constitute a defense to the
enforcement by the Company of these covenants.
15. Tolling Period. The covenants and obligations of the
Officer contained in this Agreement shall be extended by the
length of time during which the Officer shall have been in breach
of any of said provisions.
16. Final Agreement. This Agreement supersedes all prior
agreements, and is the entire and final understanding of the
parties as to the subject matter hereof.
17. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
successors in interest of any kind whatsoever.
MICRON ELECTRONICS, INC. OFFICER
- -------------------------------- --------------------------------
Date: Date:
--------------------------- ---------------------------
EXHIBIT 10.48
EMPLOYMENT AND NONCOMPETE AGREEMENT
This Employment and Noncompete Agreement ("Agreement") is by
and between Micron Electronics, Inc., a Minnesota corporation
(the "Company"), and ___________________________, an individual
and officer of the Company (the "Officer"), and is effective as
of the last date signed below.
WHEREAS, the parties recognize that it is in the best
interest of the Company to provide for a smooth transition when
there is a change in management, and wish to recognize the valued
contributions of the Officer; and
WHEREAS, the Company desires to provide the Officer with
benefits in consideration for his or her execution of this
Agreement;
NOW THEREFORE, the parties agree as follows:
1. Termination of the Officer. Either the Company or the
Officer may at any time terminate the Officer's active employment
with the Company for any reason, voluntary or involuntary, with
or without cause, by providing notice to that effect in writing.
The date such notice is received by the other party shall be
deemed the "Termination Date." Upon receipt by the Officer of a
notice of termination from the Company, and upon the Company's
request, the Officer will resign immediately as an Officer and/or
Director.
2. Effect of Termination. Effective on the Termination
Date, and for a period defined in Paragraph 2(a) (the "Transition
Period"), the Officer shall continue as an employee only for
purposes of receiving the benefits specified in Paragraph 3.
During the Transition Period, the Officer may continue in a
consulting role with the Company, or continue as a non-officer
employee with the Company, if both parties agree.
(a) Transition Period. For purposes of this
agreement, the "Transition Period" shall be six (6) months, plus
the amount of any TOP time and leave time, if any, which the
Officer has accrued as of the Termination Date.
(b) Change of Officer Status. In the event that
the Officer or the Company terminates the Officer's status as an
Officer of the Company but not as an employee, both parties agree
that such change in status will be treated as a termination for
purposes of this Agreement, and that the date of such change in
status will be deemed the Termination Date. Following the
Transition Period, the Officer shall be entitled only to such
compensation and benefits for his or her services as an employee
that may be mutually agreed upon between the Company and the
Officer. In no circumstance shall benefits under Paragraph 3 be
paid to an Officer for a period longer than the first Transition
Period created by a change of status or termination.
3. Benefits During Transition Period. Provided the
Officer complies with the terms of this Agreement, the Officer
will receive during the Transition Period all benefits
customarily provided to officers of the Company, including, but
not limited to salary, bonuses, Officer bonuses, and the
continued vesting of any granted stock options, as if the
Officer's employment as an officer had continued during that
period. "Customarily provided" refers to Company practices and
plans with respect to officer benefits and compensation in effect
as of the Termination Date. For purposes of this provision,
however, it will be understood that the Officer, during the
Transition Period, will not be entitled to any new grants of
interest in future Officer bonus pools, nor to any new grants of
stock options. It will be further understood that the Officer
will not be entitled to payment of any compensation that is
deferred past the Transition Period due to payment criteria of an
incentive program, as those criteria existed as of the
Termination Date. No action by the Company or the Company's
Board of Directors may affect the Officer's receipt of the
benefits set forth above, other than as provided herein.
4. Agreement Not to Compete or Solicit. During such
time as the Officer is employed by the Company and upon the
Officer's termination, continuing throughout the Transition
Period, and in consideration of the benefits specified in
Paragraph 3 above and the terms and obligations of this
Agreement, Officer agrees as follows:
(a) Acknowledgment. Officer recognizes and
acknowledges that it is essential for the proper protection of
the Company and its business interests that the Officer be
restrained (a) from competing against the Company during the
Officer's employment and for a reasonable period following the
termination of the Officer's employment with the Company; (b)
from soliciting or inducing any officer or employee of the
Company to leave the employ of the Company; (c) from hiring or
attempting to hire any officer or employee of the Company; and
(d) from soliciting the trade of or trading with the customers
and suppliers of the Company for any business purpose. Officer
further recognizes and acknowledges that the Company's business
interests that require and justify protection include, without
limitation, trade secrets, confidential information, proprietary
information, customer or supplier information and lists,
accounts, knowledge and skill acquired with the Company, customer
or supplier relations, and avoiding unfair competition.
(b) Covenant Not to Compete. The Officer shall not
engage in competition with the Company, render advice or service
to any entity In Competition With the Company, or engage in any
other employment, occupation, consulting or other business
activity directly related to the business in which the Company
is now involved or becomes involved during the term of the
Officer's employment or during the Transition Period. The phrase
"In Competition With the Company" as used herein shall be deemed
to include competition with the Company or its respective
successors or assigns, or the businesses of any of them. A
person, firm, business, or other entity is In Competition With
the Company if it is engaged in the design, development,
manufacture, marketing, or sale of semiconductor memory products,
personal computers, servers, printed circuit boards, memory
modules, related personal computer peripheral equipment, or any
other business in which the Company, or any parent, subsidiary or
affiliate of the Company is currently engaged or becomes engaged
during the term of the Officer's employment or the Transition
Period, including any business which is substantially similar to
or competitive with any such business or products.
(c) Covenant of Non-Solicitation of Employees. The
Officer shall not directly or indirectly, personally or through
others, employ or solicit for employment, or advise or recommend
to any other person, firm, business or entity that they employ or
solicit for employment, any employee of the Company; provided,
however, that the Company shall not preclude the Officer from
giving an employment reference at the request of an employee of
the Company or at the request of a prospective employer of such
employee. The Officer shall not encourage, induce, attempt to
induce, solicit or attempt to solicit any employee of the
Company, or any parent, subsidiary or affiliate of the Company
to leave his or her employment with the Company, or any of
parent, subsidiary or affiliate of the Company.
(d) Covenant of Non-Interference or Solicitation or
Diversion of Business. The Officer shall not, directly or
indirectly, personally or through others, contact, solicit,
advise, encourage, induce, or consult any client, account, or
customer of the Company for the purpose or with the effect of
causing such client, account or customer to purchase, license or
otherwise obtain products or services from a person, firm,
business or entity In Competition With the Company. Similarly,
during the Period of Restriction, Officer shall not, directly or
indirectly interfere with the business relationship between the
Company and its customers, dealers, distributors, suppliers,
vendors, independent contractors, service providers, or other
parties with which the Company has business relationships, or
encourage or induce (or attempt to induce) any such party to
terminate its relationship with the Company, or to modify the
terms of such relationship in a manner adverse to the best
interests of the Company.
(e) Covenant of Non-Solicitation of Customers and
Suppliers. Officer agrees that during the Officer's time of
employment with the Company the Officer shall not, directly or
indirectly, personally or through others, solicit the trade of,
or trade with, any customer or prospective customer, or supplier
or prospective supplier of the Company for any business purpose
other than for the benefit of the Company. Officer further
agrees that during the Transition Period, Officer shall not,
directly or indirectly, personally or through others, solicit
the trade of, or trade with, any customers or suppliers, or
prospective customers or suppliers, of the Company.
(f) Acknowledgment of Reasonableness of Restrictions.
Officer specifically acknowledges and agrees that the covenants
and nature of the limitations upon Officer's activities as
specified herein, together with the duration and scope of such
covenants and restrictions, are reasonable limitations on
Officer's activities, and that the restrictions are required to
preserve, promote and protect the business interests and good-
will of the Company and impose no greater restraint than is
reasonably necessary to secure such protection.
(g) Interpretation of Covenants. In the event that
any covenant or the provisions of any covenant or restriction in
this Agreement shall be held invalid or unenforceable by a court
of competent jurisdiction for any reason, including, but not
limited to, the duration or scope thereof, such invalidity or
unenforceability shall attach only to the specific covenant or
provision determined to be unenforceable and the remaining
covenants or provisions of the specific covenant shall remain in
full force and effect for the greatest time period and for the
broadest scope permitted by applicable law. Officer and the
Company intend that each of the covenants shall be deemed to be
a series of separate covenants, one for each and every county of
each and every state of the United States of America, and one for
each and every political subdivision of each and every other
country where the covenants shall be effective.
5. Accounting for Profits. Officer covenants and agrees
that in the event Officer violates any of Officer's restrictions
or obligations under this Agreement the Company shall be entitled
to an accounting and payment of all profits, compensation,
commissions, remuneration or other benefits which Officer
directly or indirectly has received and/or may receive as a
result of growing out of or in connection with the violation of
any such restrictions or obligations. Officer and the Company
acknowledge and agree that such remedy shall be in addition to
and not in limitation of any injunctive relief or other rights or
remedies to which the Company is or may be entitled at law, in
equity or under this Agreement.
6. Indemnification. Without in any way limiting any other
rights or remedies otherwise available to the Company at law or
in equity. Officer shall hold harmless and indemnify the Company
from and against, and shall compensate and reimburse the Company
for, any loss, damage, injury, decline in value, lost
opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee (including reasonable
attorneys' fees) charge, cost (including costs of investigation)
or expense of any nature (collectively, the "Damages") which are
directly or indirectly suffered or incurred at any time by the
Company, or to which the Company otherwise becomes subject
(regardless of whether or not such Damages relate to a third
party claim), and that arise from or are directly or indirectly
connected with any breach of any covenant or obligation of
Officer contained herein.
7. Entitlement to Equitable Relief. Officer and the
Company acknowledge and agree that the breach by Officer of any
covenant, restriction or obligation under this Agreement will
cause the Company substantial, immediate and irreparable harm,
that the extent of damages will be difficult to measure, and,
consequently, there is not adequate remedy at law in the event of
such breach. Accordingly, the Company and Officer hereby agree
that the Company shall be entitled to injunctive relief, without
prejudice to any other right the Company may have in law or in
equity under this Agreement, by bringing an appropriate action
for such remedy in any court of competent jurisdiction which the
Company, in its sole discretion, deems appropriate.
8. Confidentiality. The parties agree that throughout the
Transition Period no statements regarding the Officer's
termination will be made other than to indicate that the reasons
for, and circumstances of, the termination are CONFIDENTIAL and
that both the Company, the Board of Directors, and the Officer
are obligated to make "no comment" regarding the termination.
For purposes of this paragraph, "statements" include, but are not
limited to, statements to the press, analysts, and journalists.
Nothing in this paragraph is meant to prevent the Company from
disclosing any facts required to be disclosed pursuant to statute
or regulation.
9. Termination. Notwithstanding the provisions of
paragraph 1, above, this Agreement automatically terminates when
the Officer turns sixty-five (65) years of age, and any
termination or change of status of the Officer after that date
will not entitle the Officer to any of the benefits of this
Agreement.
10. Release. Upon receipt of all benefits under this
Agreement, the Officer and Company settle, waive, and voluntarily
release any and all claims each has or may have against the
other, inclusive of any of the Company's affiliates, officers,
directors, employees or agents, both individually and in their
official capacities, which claims accrued prior to the end of the
Transition Period.
11. Restrictive Covenants. Officer represents and warrants
that the Officer's experience and capabilities are such that the
restrictive covenants set forth in this Agreement will not
prevent the Officer from earning a livelihood, and that Officer
will be fully able to earn and receive an adequate livelihood for
Officer and Officer's dependents if any of such provisions should
be specifically enforced against Officer.
12. Consent to Jurisdiction and Venue. Officer hereby
irrevocably submits to the jurisdiction of the United States
District Court for the District of Idaho, or the District Court
in and for the County of Canyon, State of Idaho, in any action or
proceeding arising out of or relating to this Agreement, and
Officer hereby irrevocably agrees that all claims in respect of
any such action or proceeding may be heard and determined in
either such court. Officer further irrevocably waives any
objection that Officer now or hereafter may have to the laying of
venue of any action or proceeding arising out of or relating to
this Agreement brought in either such court on the ground that
any such action or proceeding in either of such courts has been
brought in an inconvenient forum. Nothing in this paragraph
shall affect the right of the Company to bring any action or
proceeding against Officer or Officer's property in the courts of
other jurisdictions. Officer agrees that a final judgment in any
such action or proceeding shall to the extent permitted by
applicable law be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by applicable law related to the enforcement of
judgments.
13. Employer Violation Not A Defense. The existence or
allegation of any claims or causes of action of the Officer
against the Company shall not constitute a defense to the
enforcement by the Company of the covenants or obligations
contained in this Agreement.
14. Covenants of the Essence. The covenants of the Officer
set forth herein are of the essence of this Agreement; they shall
be construed as independent of any other provision in this
Agreement; and the existence of any claim or cause of action of
the Officer against the Company, whether predicated on this
Agreement or not, shall not constitute a defense to the
enforcement by the Company of these covenants.
15. Tolling Period. The covenants and obligations of the
Officer contained in this Agreement shall be extended by the
length of time during which the Officer shall have been in breach
of any of said provisions.
16. Final Agreement. This Agreement supersedes all prior
agreements, and is the entire and final understanding of the
parties as to the subject matter hereof.
17. Binding Effect. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective
successors in interest of any kind whatsoever.
MICRON ELECTRONICS, INC. OFFICER
- --------------------------------- --------------------------------
Date: Date:
---------------------------- ---------------------------
EXHIBIT 10.49
ADDENDUM TO SEVERANCE AGREEMENT
This Addendum to Severance Agreement is by and between
Micron Electronics, Inc., a Minnesota corporation ("the
Company"), and T. Erik Oaas, an individual and officer of
the Company ("the Officer"), and is effective as of the date
both parties sign below.
WHEREAS, the parties entered into a Severance Agreement
dated January 30, 1996 ("the Agreement"); and
WHEREAS, it is the parties mutual desire to modify
certain provisions of the Agreement;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties agree to modify the Agreement as follows:
The following subparagraph 2(c) shall be added to the
Agreement:
2(c) In the event that Officer performs any service or
work that conflicts with the interests of the Company or
engages in competition with the Company during the
Transition Period, the Officer shall not thereafter receive
any benefits or payments pursuant to the Agreement or this
Addendum.
The following subparagraphs 3(a) and 3(b) shall be
added to the Agreement:
3(a). All Officer's executive bonuses awarded to
the Officer with respect to his performance at any time
prior to the commencement of fiscal year 1998 (the "Pre-1998
Bonuses") shall be fixed at the amounts determined by the
Compensation Committee of the Company's Board of Directors
(the "Committee") as set forth in written resolutions
approved or entered by the Committee prior to the effective
date of this Addendum. The Company shall not reduce or
change the Committee's determination of the award of any Pre-
1998 Bonuses due Officer. The Company shall pay to Officer
any unpaid portions of the Pre-1998 Bonuses according to the
applicable payout schedule determined by the Committee prior
to the effective date of this Addendum.
3(b). The parties agree that the executive bonus
allocated to the Officer for fiscal year 1998 is fixed at
0.45% of consolidated after-tax net profits of the Company
for such fiscal year ("1998 Bonus"). The Company shall not
reduce or cancel the 1998 Bonus. Provided, however, that
the maximum 1998 Bonus amount that can be paid to the
Officer cannot exceed the greater of $2,000,000 or two
percent (2%) of the Company's consolidated after-tax net
profits. The Company shall pay the entire 1998 Bonus to the
Officer within 90 days after the Company's fiscal 1998 year
end. Notwithstanding any other provision of the Agreement
or this Addendum, the Company shall not be obligated to pay
the Officer for the 1998 Bonus in the event the Officer has
committed during his employment as an Officer of the Company
any act of willful misconduct or gross negligence which has
a material adverse impact to the Company.
3(c) Notwithstanding any other provision of the
Agreement or this Addendum, the Officer shall not be
entitled to payment of any unpaid portion of any executive
bonuses after the Transition Period, as defined in the
Agreement.
Paragraph 4 of the Agreement shall be changed by
addition of the following language:
4. Notwithstanding any other provision of the
Agreement, the Company, the Board of Directors, and the
Officer shall be allowed to state reasons other than "no
comment" regarding the termination; provided, however, that
the Officer and the Company in advance must mutually agree
in writing to what additional statements other than "no
comment" are permissible by any of them.
The following paragraphs 8 through 12 shall be added to
the Agreement:
8. Agreement Not to Compete or Solicit. During a
period of one year after the Termination Date as defined in
the Agreement (the "Period of Restriction"), and in
consideration of the benefits specified in the Agreement and
this Addendum, and the others terms and obligations of the
Agreement and this Addendum, Officer agrees as follows:
(a) Acknowledgment. Officer recognizes and
acknowledges that it is essential for the proper protection
of the Company and its business interests that the Officer
be restrained (a) from competing against the Company during
the Officer's employment and for a reasonable period
following the termination of the Officer's employment with
the Company; (b) from soliciting or inducing any officer or
employee of the Company to leave the employ of the Company;
(c) from hiring or attempting to hire any officer or
employee of the Company; and (d) from soliciting the trade
of or trading with the customers and suppliers of the
Company for any business purpose. Officer further
recognizes and acknowledges that the Company's business
interests that require and justify protection include,
without limitation, trade secrets, confidential information,
proprietary information, customer or supplier information
and lists, accounts, knowledge and skill acquired with the
Company, customer or supplier relations, and avoiding unfair
competition.
(b) Covenant Not to Compete. During the Period
of Restriction the Officer shall not engage in competition
with the Company, render advice or service to any entity in
competition with the company, or engage in any other
employment, occupation, consulting or other business
activity directly related to the business or businesses in
which the Company or its subsidiaries is currently involved.
Involvement by the Officer in a business activity during the
Period of Restriction related to a business in which the
Company and its subsidiaries is no longer engaged shall not
be considered a violation of this Agreement.
(c) Covenant of Non-Solicitation of Employees.
During the term of the Officer's employment and during the
Period of Restriction, the Officer shall not directly or
indirectly, personally or through others, employ or solicit
for employment, or advise or recommend to any other person,
firm, business or entity that they employ or solicit for
employment, any employee of the Company; provided, however,
that the Company shall not preclude the Officer from giving
an employment reference at the request of an employee of the
Company or at the request of a prospective employer of such
employee. During the term of the Officer's employment and
during the Period of Restriction, the Officer shall not
encourage, induce, attempt to induce, solicit or attempt to
solicit any employee of the Company, or any parent,
subsidiary or affiliate of the Company, to leave his or her
employment with the Company, or with any parent, subsidiary
or affiliate of the Company.
(d) Covenant of Non-Interference or Solicitation
or Diversion of Business. During the term of the Officer's
employment and during the Period of Restriction the Officer
shall not, directly or indirectly, personally or through
others, contact, solicit, advise, encourage, induce, or
consult any client, account, or customer of the Company for
the purpose or with the effect of causing such client,
account or customer to purchase, license or otherwise obtain
products or services from a person, firm, business or entity
in competition with the Company. Similarly, during the term
of the Officer's employment and during the Period of
Restriction, Officer shall not, directly or indirectly
interfere with the business relationship between the Company
and its customers, dealers, distributors, suppliers,
vendors, independent contractors, service providers, or
other parties with which the Company has business
relationships, or encourage or induce (or attempt to induce)
any such party to terminate its relationship with the
Company, or to modify the terms of such relationship in a
manner adverse to the best interests of the Company.
(e) Covenant of Non-Solicitation of Customers and
Suppliers. Officer agrees that during the Officer's time of
employment with the Company the Officer shall not, directly
or indirectly, personally or through others, solicit the
trade of, or trade with, any customer or prospective
customer, or supplier or prospective supplier of the Company
for any business purpose other than for the benefit of the
Company.
(f) Acknowledgment of Reasonableness of
Restrictions. Officer specifically acknowledges and agrees
that the covenants and nature of the limitations upon
Officer's activities as specified herein, together with the
duration and scope of such covenants and restrictions, are
reasonable limitations on Officer's activities, and that the
restrictions are required to preserve, promote and protect
the business interests and good-will of the Company.
(g) Interpretation of Covenants. In the event
that any covenant or the provisions of any covenant or
restriction in this Agreement or Addendum shall be held
invalid or unenforceable by a court of competent
jurisdiction for any reason, including, but not limited to,
the duration or scope thereof, such invalidity or
unenforceability shall attach only to the specific covenant
or provision determined to be unenforceable and the
remaining covenants or provisions of the specific covenant
shall remain in full force and effect for the greatest time
period and for the broadest scope permitted by applicable
law. Officer and the Company intend that each of the
covenants shall be deemed to be a series of separate
covenants, one for each and every county of each and every
state of the United States of America, and one for each and
every political subdivision of each and every other country
where the covenants shall be effective. In the event of any
inconsistency between the covenant or the provisions of any
covenant or restriction in this Addendum and the terms of
the Agreement, the covenants, provisions and restriction of
this Addendum shall control.
9. Entitlement to Equitable Relief. Officer and the
Company acknowledge and agree that the breach by Officer of
any covenant, restriction or obligation under this Agreement
or Addendum will cause the Company substantial, immediate
and irreparable harm, that the extent of damages will be
difficult to measure, and, consequently, there is not
adequate remedy at law in the event of such breach.
Accordingly, the Company and Officer hereby agree that the
Company shall be entitled to injunctive relief, without
prejudice to any other right the Company may have in law or
in equity under this Agreement or Addendum, by bringing an
appropriate action for such remedy in any court of competent
jurisdiction which the Company, in its sole discretion,
deems appropriate.
10. Restrictive Covenants. Officer represents and
warrants that the Officer's experience and capabilities are
such that the restrictive covenants set forth in this
Agreement or Addendum will not prevent the Officer from
earning a livelihood, and that Officer will be fully able to
earn and receive an adequate livelihood for Officer and
Officer's dependents if any of such provisions should be
specifically enforced against Officer.
11. Covenants of the Essence. The covenants of the
Officer set forth herein are of the essence of this
Agreement or Addendum; they shall be construed as
independent of any other provision in this Agreement or
Addendum; and the existence of any claim or cause of action
of the Officer against the Company, whether predicated on
this Agreement or Addendum or not, shall not constitute a
defense to the enforcement by the Company of these
covenants.
12. Tolling Period. The covenants and obligations of
the Officer contained in this Agreement or Addendum shall be
extended by the length of time during which the Officer
shall have been in breach of any of said provisions.
NO FURTHER MODIFICATION. Except as expressly set forth
hereinabove in this Addendum, the terms and conditions of
the Agreement shall remain in full force and effect.
MICRON ELECTRONICS, INC. OFFICER
By: /s/ Joseph M. Daltoso /s/ T. Erik Oaas
----------------------------- -----------------------------
Its: Chairman and CEO Dated: Janaury 23, 1998
---------------------------- -----------------------
Dated: January 23, 1998
--------------------------
EXHIBIT 10.50
ADDENDUM TO SEVERANCE AGREEMENT
This Addendum to Severance Agreement is by and between
Micron Electronics, Inc., a Minnesota corporation ("the
Company"), and Gregory D. Stevenson, an individual and
officer of the Company ("the Officer"), and is effective as
of the last date signed below.
WHEREAS, the parties entered into a Severance Agreement
dated January 30, 1996 ("the Agreement"); and
WHEREAS, it is the parties mutual desire to modify
certain provisions of the Agreement;
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties agree to modify the Agreement as follows:
The following subparagraph 2(c) shall be added to the
Agreement:
2(c) In the event that Officer performs any service or
work that conflicts with the interests of the Company or
engages in competition with the Company during the
Transition Period, the Officer shall not thereafter receive
any benefits or payments pursuant to the Agreement or this
Addendum.
The following subparagraphs 3(a) and 3(b) shall be
added to the Agreement:
3(a). All of the Officer's executive bonuses
awarded to the Officer with respect to his performance at
any time prior to the commencement of fiscal year 1998 (the
"Pre-1998 Bonuses") shall be fixed at the amounts determined
by the Compensation Committee of the Company's Board of
Directors (the "Committee") as set forth in written
resolutions approved or entered by the Committee prior to
the effective date of this Addendum. The Company shall not
reduce or change the Committee's determination of the award
of any Pre-1998 Bonuses due Officer. The Company shall pay
to Officer any unpaid portions of the Pre-1998 Bonuses
according to the applicable payout schedule determined by
the Committee prior to the effective date of this Addendum.
3(b). The parties agree that the executive bonus
allocated to the Officer for fiscal year 1998 is fixed at
0.55% of consolidated after-tax net profits of the Company
for such fiscal year ("1998 Bonus"). The Company shall not
reduce or cancel the 1998 Bonus. Provided, however, that
the maximum 1998 Bonus amount that can be paid to the
Officer cannot exceed the greater of $2,000,000 or two
percent (2%) of the Company's consolidated after-tax net
profits. The Company shall pay the 1998 Bonus to the
Officer within 90 days after the Company's fiscal 1998 year
end. Notwithstanding any other provision of the Agreement
or this Addendum, the Company shall not be obligated to pay
the Officer for the 1998 Bonus in the event the Officer has
committed during his employment as an Officer of the Company
any act of willful misconduct or gross negligence which has
a material adverse impact to the Company.
3(c) Notwithstanding any other provision of the
Agreement or this Addendum, the Officer shall not be
entitled to payment of any unpaid portion of any executive
bonuses after the Transition Period, as defined in the
Agreement.
Paragraph 4 of the Agreement shall be changed by
addition of the following language:
4. Notwithstanding any other provision of the
Agreement, the Company, the Board of Directors, and the
Officer shall be allowed to indicate or state that the
Officer left the Company for personal reasons.
The following paragraphs 8 through 12 shall be added to
the Agreement:
8. Agreement Not to Compete or Solicit. During a
period of one year after the Termination Date as defined in
the Agreement (the "Period of Restriction"), and in
consideration of the benefits specified in the Agreement and
this Addendum, and the others terms and obligations of the
Agreement and this Addendum, Officer agrees as follows:
(a) Acknowledgment. Officer recognizes and
acknowledges that it is essential for the proper protection
of the Company and its business interests that the Officer
be restrained (a) from competing against the Company during
the Officer's employment and for a reasonable period
following the termination of the Officer's employment with
the Company; (b) from soliciting or inducing any officer or
employee of the Company to leave the employ of the Company;
(c) from hiring or attempting to hire any officer or
employee of the Company; and (d) from soliciting the trade
of or trading with the customers and suppliers of the
Company for any business purpose. Officer further
recognizes and acknowledges that the Company's business
interests that require and justify protection include,
without limitation, trade secrets, confidential information,
proprietary information, customer or supplier information
and lists, accounts, knowledge and skill acquired with the
Company, customer or supplier relations, and avoiding unfair
competition.
(b) Covenant Not to Compete. During the Period
of Restriction the Officer shall not engage in competition
with the Company, render advice or service to any entity in
competition with the company, or engage in any other
employment, occupation, consulting or other business
activity directly related to the business or businesses in
which the Company or its subsidiaries is currently involved.
Involvement by the Officer in a business activity during the
Period of Restriction related to a business in which the
Company and its subsidiaries is no longer engaged shall not
be considered a violation of this Agreement.
(c) Covenant of Non-Solicitation of Employees.
During the term of the Officer's employment and during the
Period of Restriction, the Officer shall not directly or
indirectly, personally or through others, employ or solicit
for employment, or advise or recommend to any other person,
firm, business or entity that they employ or solicit for
employment, any employee of the Company; provided, however,
that the Company shall not preclude the Officer from giving
an employment reference at the request of an employee of the
Company or at the request of a prospective employer of such
employee. During the term of the Officer's employment and
during the Period of Restriction, the Officer shall not
encourage, induce, attempt to induce, solicit or attempt to
solicit any employee of the Company, or any parent,
subsidiary or affiliate of the Company to leave his or her
employment with the Company, or with any parent, subsidiary
or affiliate of the Company.
(d) Covenant of Non-Interference or Solicitation
or Diversion of Business. During the term of the Officer's
employment and during the Period of Restriction the Officer
shall not, directly or indirectly, personally or through
others, contact, solicit, advise, encourage, induce, or
consult any client, account, or customer of the Company for
the purpose or with the effect of causing such client,
account or customer to purchase, license or otherwise obtain
products or services from a person, firm, business or entity
in competition with the Company. Similarly, during the term
of the Officer's employment and during the Period of
Restriction, Officer shall not, directly or indirectly
interfere with the business relationship between the Company
and its customers, dealers, distributors, suppliers,
vendors, independent contractors, service providers, or
other parties with which the Company has business
relationships, or encourage or induce (or attempt to induce)
any such party to terminate its relationship with the
Company, or to modify the terms of such relationship in a
manner adverse to the best interests of the Company.
(e) Covenant of Non-Solicitation of Customers and
Suppliers. Officer agrees that during the Officer's time of
employment with the Company the Officer shall not, directly
or indirectly, personally or through others, solicit the
trade of, or trade with, any customer or prospective
customer, or supplier or prospective supplier of the Company
for any business purpose other than for the benefit of the
Company.
(f) Acknowledgment of Reasonableness of
Restrictions. Officer specifically acknowledges and agrees
that the covenants and nature of the limitations upon
Officer's activities as specified herein, together with the
duration and scope of such covenants and restrictions, are
reasonable limitations on Officer's activities, and that the
restrictions are required to preserve, promote and protect
the business interests and good-will of the Company.
(g) Interpretation of Covenants. In the event
that any covenant or the provisions of any covenant or
restriction in this Agreement or Addendum shall be held
invalid or unenforceable by a court of competent
jurisdiction for any reason, including, but not limited to,
the duration or scope thereof, such invalidity or
unenforceability shall attach only to the specific covenant
or provision determined to be unenforceable and the
remaining covenants or provisions of the specific covenant
shall remain in full force and effect for the greatest time
period and for the broadest scope permitted by applicable
law. Officer and the Company intend that each of the
covenants shall be deemed to be a series of separate
covenants, one for each and every county of each and every
state of the United States of America, and one for each and
every political subdivision of each and every other country
where the covenants shall be effective. In the event of any
inconsistency between the covenant or the provisions of any
covenant or restriction in this Addendum and the terms of
the Agreement, the covenants, provisions and restriction of
this Addendum shall control.
9. Entitlement to Equitable Relief. Officer and the
Company acknowledge and agree that the breach by Officer of
any covenant, restriction or obligation under this Agreement
or Addendum will cause the Company substantial, immediate
and irreparable harm, that the extent of damages will be
difficult to measure, and, consequently, there is not
adequate remedy at law in the event of such breach.
Accordingly, the Company and Officer hereby agree that the
Company shall be entitled to injunctive relief, without
prejudice to any other right the Company may have in law or
in equity under this Agreement or Addendum, by bringing an
appropriate action for such remedy in any court of competent
jurisdiction which the Company, in its sole discretion,
deems appropriate.
10. Restrictive Covenants. Officer represents and
warrants that the Officer's experience and capabilities are
such that the restrictive covenants set forth in this
Agreement or Addendum will not prevent the Officer from
earning a livelihood, and that Officer will be fully able to
earn and receive an adequate livelihood for Officer and
Officer's dependents if any of such provisions should be
specifically enforced against Officer.
11. Covenants of the Essence. The covenants of the
Officer set forth herein are of the essence of this
Agreement or Addendum; they shall be construed as
independent of any other provision in this Agreement or
Addendum; and the existence of any claim or cause of action
of the Officer against the Company, whether predicated on
this Agreement or Addendum or not, shall not constitute a
defense to the enforcement by the Company of these
covenants.
12. Tolling Period. The covenants and obligations of
the Officer contained in this Agreement or Addendum shall be
extended by the length of time during which the Officer
shall have been in breach of any of said provisions.
NO FURTHER MODIFICATION. Except as expressly set forth
hereinabove in this Addendum, the terms and conditions of
the Agreement shall remain in full force and effect.
MICRON ELECTRONICS, INC. OFFICER
By: /s/ Joseph M. Daltoso /s/ Gregory D. Stevenson
------------------------------ ------------------------------
Its: Chairman and CEO Dated: January 12, 1998
----------------------------- ------------------------
Dated: January 12, 1998
---------------------------
EXHIBIT 10.51
TERMINATION AGREEMENT
This Termination Agreement is entered into effective
December 21, 1997, between Micron Electronics, Inc., a Minnesota
corporation (the "Company"), and Robert F. Subia (the "Officer")
(the Company and Officer are jointly referred to herein as the
"Parties").
RECITALS
WHEREAS, Officer has been employed as Chairman, Chief
Executive Officer, and President by Micron Custom Manufacturing
Services, Inc., an Idaho corporation and wholly-owned subsidiary
of the Company ("CMS");
WHEREAS, the Company and Officer previously have
entered into a Severance Agreement dated January 30, 1996 (the "
Severance Agreement");
WHEREAS, the Company has entered into a
Recapitalization Agreement dated as of December __, 1997 (the
"Recapitalization Agreement"), with CMS and Cornerstone Equity
Investors IV, L.P., a Delaware limited partnership ("Investor"),
pursuant to which CMS will undergo a Recapitalization (the
"Recapitalization"), as a result of which the Company will
dispose of 90% of its equity interest in CMS;
WHEREAS, the Parties recognize that it is in the best
interest of the Parties and CMS to provide for a smooth
transition when there is a change in management and ownership as
a result of the Recapitalization;
WHEREAS, from and after the Closing Date (as the term
"Closing Date" is defined in the Recapitalization Agreement,
which definition is incorporated herein by this reference), it is
anticipated by Investor and CMS that Officer will continue to be
employed by CMS; and
WHEREAS, the Parties desire to discontinue the
employment relationship between them (if any) on the terms and
subject to the conditions described in this Termination
Agreement;
WHEREAS, the Company desires to provide Officer with
benefits in consideration for his execution of this Termination
Agreement; and
WHEREAS, the Parties intend and acknowledge by this
Agreement to fully and finally resolve all disputes and
differences between them, including, but in no way limited to,
any differences that might arise out of Officer's employment
relationship with CMS prior to the Closing Date, or with the
Company (if any) at any time, and all ambiguities regarding the
rights and obligations of the Parties in these circumstances,
whether arising under Officer's employment, the Severance
Agreement, or otherwise.
NOW, THEREFORE, it is hereby agreed as follows:
1. Termination. Effective as of the Closing Date,
the following shall automatically occur without the necessity of
any further notice: (a) the Severance Agreement shall terminate
and be of no further force or effect; (b) Officer shall have no
right or entitlement to any employment with the Company; and (c)
Officer shall have no authority to act for or bind the Company in
any manner or capacity whatsoever, and Officer shall not
represent to any third party to the contrary.
2. Effect of Termination. Subject to the terms and
conditions of this Termination Agreement (including without
limitation the termination benefits described in paragraph 3),
any employment or severance agreement, and any other employment
arrangement or understanding, whether written or oral, between
Officer and the Company are terminated effective as of the
Closing Date, and, other than as expressly set forth in this
Termination Agreement, the Parties shall have no further
obligation to each other relating to Officer's employment.
3. Termination Benefits. As consideration for this
Termination Agreement, the Company agrees to pay to Officer
commencing upon the Closing Date a gross sum totaling One Million
Twenty Six Thousand Two Hundred Twenty Three and 05/100 Dollars
($1,026,223.05), less payroll deductions and withholdings.
4. Employee Benefits. Except as otherwise provided
in this Termination Agreement, the rights and benefits of Officer
under any Employee Benefit Plan (as the term "Employee Benefit
Plan" is defined in the Recapitalization Agreement, which
definition is incorporated herein by this reference) shall be
determined in accordance with the terms of the Recapitalization
Agreement, and the responsibility for any liabilities to Officer
for his participation under any Employee Benefit Plans shall be
governed by the Recapitalization Agreement.
5. Stock Options. The Parties agree that certain
stock options with the Company have heretofore been granted to
Officer, including, without limitation, unvested stock options
under the Company's 1995 Stock Option Plan or otherwise.
Notwithstanding the terms of any agreement, plan, policy or
document, Officer agrees that any and all of his unvested stock
options with the Company as of the date hereof shall be forfeited
as of the Closing Date, and Officer shall have no entitlement,
right, reimbursement, or payment with respect thereto.
6. Termination of All Other Benefits. Officer shall
not be entitled to any payment under any bonus or incentive
programs, including without limitation the Company's Executive
Bonus Plan or CMS's Executive Bonus Pool, or the Company's Pay
for Performance or Profit Sharing programs. All other
compensation, perquisites, and benefits heretofore provided by
the Company to Officer, if any, will immediately cease upon the
Closing Date. After the Closing Date, Officer shall have no
rights or entitlement to any benefits, except as otherwise
provided with respect to any Employee Benefit Plan as required to
be established under the Recapitalization Agreement or as
required by the federal Employee Retirement Income Security Act.
7. Releases. The obligations of the Company and
Officer pursuant to this Termination Agreement shall be
contingent upon the receipt by Officer from the Company, and by
the Company from the Officer, of original releases substantially
in the forms attached hereto as Exhibits "A" and "B,"
respectively, which shall be signed, delivered and effective as
of the Closing Date.
8. Acknowledgment of Extinguishment of Rights.
Officer represents and agrees that he fully understands his right
to discuss all aspects of this Termination Agreement with his
private attorney, that he has been advised of his right to do so
in connection with this Termination Agreement, that he has had
the opportunity to avail himself of such right, that he has
carefully read and fully understands all of the provisions of
this Termination Agreement, and he is entering into this
Termination Agreement voluntarily and of his own free will. By
executing this Termination Agreement, Officer acknowledges and
confirms that he has no rights or interest in or against the
Company other than those expressly set forth herein, and that by
executing this Termination Agreement, he intends to terminate all
relationships with the Company, except as stated herein.
9. Representation Regarding Claims. Officer hereby
warrants that as of the date hereof, he has not filed any charge,
complaint, claims or legal action in any court, before any
administrative agency, or in or before any other forum, naming
the Company, or related entities, affiliates, officers, directors
or employees as a party. Officer further covenants and agrees
that he will not file or assist in the filing of any such
charges, complaints, claims, or legal action against the Company,
except to the extent necessary to enforce this Termination
Agreement.
10. Confidentiality. The terms and conditions of this
Termination Agreement shall be confidential. Neither of the
Parties shall disclose nor permit the disclosure of the terms and
conditions of this Agreement to any third party, except that the
Parties may disclose the terms and conditions of this Agreement
to their respective attorneys, directors, officers (including
officers of either CMS or the Company), tax advisors, or
accountants, or to the Investor or its representatives, or as
shall be required pursuant to statute, regulation or court order.
11. Non-Disclosure. Officer covenants and agrees that
he has delivered to the Company (and will not keep in his
possession, or recreate or deliver to any third party) any and
all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches,
materials, equipment, or other documents or property or
reproductions of any aforementioned items relating to the
Company. Further, Officer agrees forever not to disclose or use
any information relating to the Company, its customers, business
associates, affiliates, and parties, which is not generally known
or readily available to the public, unless Officer obtains the
Company's written consent, or the Officer is required to disclose
such information pursuant to a court order or subpoena of which
the Company has been given prior notice.
12. Agreement Not to Compete or Solicit. During the
period of Officer's employment after the Closing Date with CMS or
its Affiliates (as the term "Affiliate" is defined in the
Recapitalization Agreement, which definition is incorporated
herein by this reference) Officer shall be bound by the
noncompetition and nonsolicitation provisions of Section 4.10
and 4.12 of the Recapitalization Agreement. In the event
Officer's employment with CMS or its Affiliates is terminated for
any reason, whether voluntary or involuntary, Officer shall be
bound by the terms and conditions of this Termination Agreement
with respect to this agreement not to compete or solicit. In
consideration thereof and the termination benefits specified in
Paragraph 3 above, and the other terms, conditions, releases, and
obligations of this Agreement, Officer agrees as follows:
(a) Acknowledgment. Officer recognizes and
acknowledges that it is essential for the proper protection of
the Company and its business interests that Officer be restrained
(a) from competing against the Company for a reasonable period
following the termination of Officer's employment with the
Company and following the Closing Date; (b) from soliciting or
inducing any officer or employee of the Company to leave the
employ of the Company; (c) from attempting to hire any officer or
employee of the Company (other than through advertisements or
general solicitations); and (d) from soliciting the trade of or
trading with the customers and suppliers of the Company for any
business purpose. Officer further recognizes and acknowledges
that the Company's business interests that require and justify
protection include, without limitation, trade secrets,
confidential information, proprietary information, customer or
supplier information and lists, accounts, knowledge and skill
acquired with the Company, customer or supplier relations, and
avoiding unfair competition. The "Period of Restriction" with
respect to this Termination Agreement shall be the period from
the date hereof through the second anniversary of the Closing
Date.
(b) Covenant Not to Compete. Officer shall not at
anytime during the Period of Restriction engage in competition
with the Company, render advice or service to any entity In
Competition With the Company, or engage in any other employment,
occupation, consulting or other business activity directly
related to the business in which the Company is now involved or
becomes involved during the Period of Restriction. The phrase
"In Competition With the Company" as used herein shall be deemed
to include competition with the Company or its respective
successors or assigns, or the businesses of any of them. A
person, firm, business, or other entity is "In Competition With
the Company" if it is engaged in the design, development,
manufacture, processing, marketing, or sale of personal
computers, servers, semiconductor memory products, personal
computer peripheral equipment, or any other activities (including
the conducting of business) of the Company's advanced engineering
group consistent with the activities conducted as of the date
hereof. Notwithstanding the foregoing, the term In Competition
With the Company shall not include the Business (as the term
"Business" is defined in the Recapitalization Agreement, which
definition is incorporated herein by this reference), and Officer
shall not be prohibited from conducting such Business in
connection with his employment by CMS or its Affiliates.
(c) Covenant of Non-Solicitation of Employees.
During the Period of Restriction, Officer shall not encourage,
induce, attempt to induce, solicit or attempt to solicit any
employee of the Company, or any of its parent, subsidiary or
affiliate entities or businesses, whether directly or indirectly,
personally or through others, nor shall Officer solicit for
employment (other than through advertisements or general
solicitations), or advise or recommend to any other person, firm,
business or entity that they employ or solicit for employment,
any employee of the Company, or any of its parent, subsidiary, or
affiliate entities or businesses; provided, however, that this
provision shall not preclude Officer from acting in accordance
with the terms of the Recapitalization Agreement during the term
of his future employment with CMS or its Affiliates, after the
Closing Date, nor preclude Officer from giving an employment
reference at the request of an employee or former employee of the
Company, or at the request of a prospective employer of such
former employee.
(d) Covenant of Non-Interference, Non-
Solicitation, and Non-Diversion of Business. During the Period
of Restriction, Officer shall not, directly or indirectly,
personally or through others, contact, solicit, advise,
encourage, induce, or consult any client, account, or customer of
the Company for the purpose or with the effect of causing such
client, account or customer to purchase, license or otherwise
obtain products or services from a person, firm, business or
entity "In Competition With the Company" (as that term is defined
in paragraph 12(b) above). Similarly, during the Period of
Restriction, Officer shall not, directly or indirectly interfere
with the business relationship between the Company and its
customers, dealers, distributors, suppliers, vendors, independent
contractors, service providers, or other parties with which the
Company has business relationships, or encourage or induce (or
attempt to induce) any such party to terminate its relationship
with the Company, or to modify the terms of such relationship in
a manner adverse to the best interests of the Company. Nothing
set forth in the foregoing covenant shall prohibit Officer from
conducting in a reasonable manner the Business at CMS or its
Affiliates during the time period Officer remains employed at CMS
or its Affiliates.
(e) Acknowledgment of Reasonableness of
Restrictions. Officer specifically acknowledges and agrees that
the covenants and nature of the limitations upon Officer's
activities as specified herein, together with the duration and
scope of such covenants and restrictions, are reasonable
limitations on Officer's activities, and that the restrictions
are required to preserve, promote and protect the business
interests and good-will of the Company and impose no greater
restraint than is reasonably necessary to secure such protection.
(f) Interpretation of Covenants. In the event
that any covenant or the provisions of any covenant or
restriction in this Termination Agreement shall be held invalid
or unenforceable by a court of competent jurisdiction for any
reason, including, but not limited to, the duration or scope
thereof, such invalidity or unenforceability shall attach only to
the specific covenant or provision determined to be unenforceable
and the remaining covenants or provisions of the specific
covenant shall remain in full force and effect for the greatest
time period and for the broadest scope permitted by applicable
law. Officer and the Company intend that each of the covenants
shall be deemed to be a series of separate covenants, one for
each and every county of each and every state of the United
States of America, and one for each and every political
subdivision of each and every other country where the covenants
shall be effective.
(g) Restrictive Covenants. Officer represents
and warrants that Officer's experience and capabilities are such
that the restrictive covenants set forth in this Termination
Agreement will not prevent Officer from earning a livelihood, and
that Officer will be fully able to earn and receive an adequate
livelihood for Officer and his dependents if any of such
provisions should be specifically enforced against Officer.
13. Accounting for Profits. Officer covenants and
agrees that in the event Officer violates any of Officer's
restrictions or obligations under this Termination Agreement the
Company shall be entitled to an accounting and payment of all
profits, compensation, commissions, remuneration or other
benefits which Officer directly or indirectly has received and/or
may receive as a result of growing out of or in connection with
the violation of any such restrictions or obligations. Officer
and the Company acknowledge and agree that such remedy shall be
in addition to and not in limitation of any injunctive relief or
other rights or remedies to which the Company is or may be
entitled at law, in equity or under this Termination Agreement.
14. Indemnification. Without in any way limiting any
other rights or remedies otherwise available to the Company at
law or in equity, Officer shall hold harmless and indemnify the
Company from and against, and shall compensate and reimburse the
Company for, any loss, damage, injury, decline in value, lost
opportunity, liability, exposure, claim, demand, settlement,
judgment, award, fine, penalty, tax, fee (including reasonable
attorneys' fees) charge, cost (including costs of investigation)
or expense of any nature (collectively, the "Damages") which are
directly or indirectly suffered or incurred at any time by the
Company, or to which the Company otherwise becomes subject
(regardless of whether or not such Damages relate to a third
party claim), and that arise from or are directly or indirectly
connected with any breach of any covenant or obligation of
Officer contained herein.
15. Entitlement to Equitable Relief. Officer and the
Company acknowledge and agree that the breach by Officer of any
covenant, restriction or obligation under this Agreement will
cause the Company substantial, immediate and irreparable harm,
that the extent of damages will be difficult to measure, and,
consequently, there is not adequate remedy at law in the event of
such breach. Accordingly, the Company and Officer hereby agree
that the Company shall be entitled to injunctive relief, without
prejudice to any other right the Company may have in law or in
equity under this Agreement, by bringing an appropriate action
for such remedy in any court of competent jurisdiction which the
Company, in its sole discretion, deems appropriate.
16. Consent to Jurisdiction and Venue. Officer hereby
irrevocably submits to the jurisdiction of the United States
District Court for the District of Idaho, or the District Court
in and for the Counties of Ada or Canyon, State of Idaho, in any
action or proceeding arising out of or relating to this
Termination Agreement. Officer hereby irrevocably agrees that
all claims in respect of any such action or proceeding may be
heard and determined in such courts. Officer further irrevocably
waives any objection that Officer now or hereafter may have to
the laying of venue of any action or proceeding arising out of or
relating to this Termination Agreement brought in such courts on
the ground that any such action or proceeding in such courts has
been brought in an inconvenient forum. Nothing in this paragraph
shall affect the right of the Company to bring any action or
proceeding against Officer or Officer's property in the courts of
other jurisdictions. Officer agrees that a final judgment in any
such action or proceeding shall to the extent permitted by
applicable law be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner
provided by applicable law related to the enforcement of
judgments.
17. Company Violation Not A Defense. The existence or
allegation of any claims or causes of action of Officer against
the Company shall not constitute a defense to the enforcement by
the Company of the covenants or obligations contained in this
Termination Agreement.
18. Covenants of the Essence. The covenants of
Officer set forth herein are of the essence of this Termination
Agreement; they shall be construed as independent of any other
provision in this Termination Agreement; and the existence of any
claim or cause of action of Officer against the Company, whether
predicated on this Termination Agreement or not, shall not
constitute a defense to the enforcement by the Company of these
covenants.
19. Tolling Period. The covenants and obligations of
Officer contained in this Termination Agreement shall be extended
by the length of time during which Officer shall have been in
breach of any of said provisions.
20. Final Agreement. This Termination Agreement
supersedes all prior agreements, and is the entire and final
understanding of the Parties as to the subject matter hereof;
provided, however, that the Indemnification Agreement dated
February 19, 1997, between the Company and Officer shall survive
this Termination Agreement.
21. Severability. The validity or enforceability of
any provision of this Termination Agreement shall not affect the
validity or enforceability of any other provision of this
Termination Agreement, which shall remain in full force and
effect. In the event any provision is held to be void, voidable,
unlawful, or unenforceable, the remaining portions of this
Termination Agreement will continue in full force and effect to
the fullest extent permitted under law, except that if Officer's
release referenced in paragraph 7, above, is deemed void,
voidable, unlawful, or unenforceable, then the Company, at its
sole option and discretion, will be relieved of any remaining
obligation under this Termination Agreement and entitled to
recover any payments made to Officer under this Agreement.
22. Modification. It is expressly agreed that
this Termination Agreement may not be altered, amended, modified,
or otherwise changed in any respect except by other written
agreement that specifically refers to this Termination Agreement,
duly executed by authorized representatives of the Parties
hereto.
23. Attorneys' Fees. If any action is brought to
enforce the terms of this Termination Agreement, the prevailing
party shall be entitled to recover reasonable attorneys' fees,
costs and expenses from the other party, in addition to any other
relief to which such prevailing party may be entitled.
24. Choice of Law. This Termination Agreement
shall be governed by and its provisions construed and enforced in
accordance with the laws of the State of Idaho, as applied to
contracts between Idaho residents, entered into and to be
performed entirely within the State of Idaho, without regard to
the conflict of laws principles thereof.
25. Tax Liability. Officer shall be responsible
for, and agrees to indemnify and hold the Company harmless from
any and all tax obligations for which Officer or the Company may
become liable as a result of this Termination Agreement, except
for the Company's F.I.C.A. withholdings or ordinary federal and
state employment tax liabilities, if any, which shall remain the
Company's obligation.
26. Binding Effect. This Termination Agreement shall
be binding upon and inure to the benefit of the Parties and their
respective successors in interest of any kind whatsoever.
Notwithstanding any other provision of this Termination
Agreement, this Termination Agreement shall be null and void and
of no further force or effect in the event the Recapitalization
Agreement is terminated without consummation of the
Recapitalization.
IN WITNESS WHEREOF, the Parties set their hands the day and
year herinabove written.
MICRON ELECTRONICS, INC. ROBERT F. SUBIA
By: /s/ T. Erik Oaas Sign: /s/ Robert F. Subia
-------------------------------- ---------------------------
(authorized signature)
Name: T. Erik Oaas
------------------------------
Title: EVP, Finance and CFO
-----------------------------
<PAGE>
EXHIBIT A
Form of Release of Officer
RELEASE
TO ALL WHOM THESE PRESENTS SHALL COME OR MAY CONCERN,
KNOW that MICRON ELECTRONICS, INC., a Minnesota corporation (the
"Company"),agrees to and does hereby fully and completely forever
release, absolve and discharge, ROBERT F. SUBIA (the "Officer"),
and his heirs, executors, and administrators (hereinafter
collectively referred to as the "OFFICER RELEASEES"), with
respect to and from any and all causes of actions, claims,
demands, agreements, promises, damages, disputes, controversies,
contracts, covenants, actions, suits, accounts, wages,
obligations, debts, expenses, attorneys' fees, damages,
judgments, orders and liabilities of any kind whatsoever
(hereinafter collectively referred to as "Claims"), which the
Company ever had, now has or may have against the OFFICER
RELEASEES or any of them, in law, equity or otherwise, whether
known or unknown to the Company, for, upon, or by reason of, any
matter, course or thing whatsoever from the beginning of time to
the date of this Release, including specifically, but not
exclusively and without limiting the generality of the foregoing,
based upon, arising out of or related in any way to (i) the
Officer's obligations under the Severance Agreement dated January
30, 1996 (the "Severance Agreement"), (ii) any transaction,
occurrence, act or omission related to the Officer's employment
by the Company or the termination of that employment and (iii)
all matters referred to in the Severance Agreement and any
applicable employment, compensatory or equity arrangement with
the Company or any of its affiliates; provided, however, that
nothing herein shall release the Officer from any obligations
arising under or referred to or described in the Termination
Agreement dated December ____, 1997 (as amended, modified or
otherwise supplemental from time to time, the "Termination
Agreement") between the Company and the Officer, or impair the
right or ability of the undersigned to enforce the Termination
Agreement (or such provisions). All claims released by the
undersigned pursuant to this Release shall collectively be
referred to herein as the "Released Company Claims."
[Notwithstanding the foregoing, in no event shall the
Released Company Claims include any Claims involving fraud,
malfeasance or willful misconduct on the part of the Officer.]
This Release shall be governed by and construed in
accordance with the laws of the State of Idaho applicable to
contracts made and to be performed solely within such State, and
without regard to the conflict of laws principles thereof.
This Release shall not be amended, altered, modified,
changed or rescinded except by an instrument in writing signed by
the undersigned.
This Release shall be binding upon the undersigned and
its successors and assigns.
IN WITNESS WHEREOF, the undersigned has caused this
RELEASE to be executed on this ____ day of _____________, 19____.
Micron Electronics, Inc.
Signed: _____________________
Printed: _____________________
Title: _____________________
<PAGE>
EXHIBIT B
Form of Release of Company
RELEASE
TO ALL WHOM THESE PRESENTS SHALL COME OR MAY CONCERN,
KNOW that the undersigned, ROBERT F. SUBIA, on his own behalf
and on behalf of his heirs, executors and administrators, agrees
to and does hereby fully and completely forever release, absolve
and discharge, MICRON ELECTRONICS, INC., a Minnesota corporation
(the "Company"), and its subsidiaries, affiliates, predecessors
and successors and all of their respective past and/or present
directors, officers, shareholders, employees, agents,
representatives, administrators, attorneys, insurers and
fiduciaries in their individual and/or representative capacities
(hereinafter collectively referred to as the "COMPANY
RELEASEES"), with respect to and from any and all causes of
actions, claims, demands, agreements, promises, damages,
disputes, controversies, contracts, covenants, actions, suits,
accounts, wages, obligations, debts, expenses, attorneys' fees,
damages, judgments, orders and liabilities of any kind whatsoever
(hereinafter collectively referred to as "Claims"), which the
undersigned or her heirs, executors and administrators, as
applicable, ever had, now have or may have against the COMPANY
RELEASEES or any of them, in law, equity or otherwise, whether
known or unknown to the undersigned, for, upon, or by reason of,
any matter, course or thing whatsoever from the beginning of time
to the date of this Release, including specifically, but not
exclusively and without limiting the generality of the foregoing,
based upon, arising out of or related in any way to (i) the
Company's obligations under the Severance Agreement dated January
30, 1996 (the "Severance Agreement"), (ii) any transaction,
occurrence, act or omission related to the undersigned's
employment by the Company or the termination of that employment,
including, but not limited to, any claims of severance pay,
bonus, sick leave, disability pay, vacation pay, life insurance,
health and medical insurance or any other fringe benefits,
workers' compensation or disability benefits and (iii) all
matters referred to in the Severance Agreement and any applicable
employment, compensatory or equity arrangement with the Company
or any of its affiliates); provided , however, that nothing
herein shall release the Company from any obligations arising
under or referred to or described in the Termination Agreement
dated December ____, 1997 (as amended, modified or otherwise
supplemented from time to time, the "Termination Agreement")
between the Company and the undersigned, or impair the right or
ability of the undersigned to enforce the Termination Agreement.
All Claims released by the undersigned pursuant to this Release
shall collectively be referred to herein as the "Released Officer
Claims".
Notwithstanding the generality of the foregoing, the
Released Officer Claims shall include, without limitation, (i)
any and all claims under Title VII of the Civil Rights Act of
1964, the Age Discrimination in Employment Act of 1967, the Civil
Rights Act of 1971, the Civil Rights Act of 1991, the Fair Labor
Standards Act, the Employment Retirement Income Security Act of
1974, the Americans with Disabilities Act, the Family and Medical
Leave Act, and any and all other federal, state or local laws,
statutes, rules and regulations pertaining to employment or
otherwise, and (ii) any claims for wrongful discharge, breach of
contract, express or implied contract, promissory estoppel,
breach of the implied covenant of good faith and fair dealing,
public policy, retaliatory discharge, intentional or negligent
infliction of emotional distress, outrageous conduct, harassment,
defamation, libel, slander, interference with contractual
relations or prospective economic advantage, right of privacy,
negligence, negligent retention, false imprisonment, conspiracy,
assault, battery, or any other contract or tort based claim or
cause of action, or any compensation claims, or any other claims
under any statute, rule or regulation or under the common law,
including compensatory damages, statutory damages, punitive
damages, attorney's fees, costs, expenses and all claims for any
other type of damage or relief.
This Release shall be governed by and construed in
accordance with the laws of the State of Idaho applicable to
contracts made and to be performed solely within such State, and
without regard to the conflict of laws principles thereof.
This Release shall not be amended, altered, modified,
changed or rescinded except by an instrument in writing signed by
the undersigned.
This Release shall be binding upon the undersigned and
his legal representatives, executors and administrators.
IN WITNESS WHEREOF, the undersigned has executed this
RELEASE on this ____ day of _____________, 19____.
Robert F. Subia
Signed: _____________________
Printed: _____________________
EXHIBIT 10.52
CONFIDENTIAL TREATMENT REQUESTED
January 10, 1998
VIA REGULAR MAIL AND FACSIMILE
Mr. Joel J. Kocher
84 Pascal Lane
Austin, TX 78746
Re: Employment Offer
Dear Mr. Kocher:
Micron Electronics, Inc. ("Micron" or "Company") is
pleased to offer you a position as President and Chief
Operating Officer of Micron on the terms and conditions set
forth below, which terms and conditions are subject to and
contingent upon final approval by Micron's Board of
Directors:
1. Arrangements have been made for you to join Micron
on or before January 12, 1998. This offer of employment is
conditioned upon successful completion of applicant
procedures, including but not limited to application
materials, and drug screen test, as well as signing Company
forms, including but not limited to Assignment of Inventions
and Rights, Confidentiality or Nondisclosure Agreement, and
an Acknowledgment to abide by the Company's Team Member
Handbook. You also will have the opportunity to enter into
an Employment and Noncompete Agreement with Micron similar
to other Company executives. Your Employment and Noncompete
Agreement will be subject to final approval by Micron's
Board of Directors, and is anticipated to be substantially
in the form of the document which is enclosed for your
reference.
2. Your responsibility at Micron will be as President
and Chief Operating Officer reporting to me. Micron is
involved in a fast-paced high technology industry. As a
result, you will be called upon to perform a variety of
activities and fulfill differing responsibilities as needed.
3. Your salary will be $350,000 per year unless
varied by the Board of Directors. In addition, you will be
eligible to participate in the Company's Executive Bonus
Program with a bonus pool allocation of .25% of Micron's net
income and subject to the terms of the Company's Executive
Bonus Plan.
4. Subject to Board of Directors approval, upon
commencing employment, you will be granted an option of
650,000 shares at the Fair Market Value on the date of
grant, subject to the terms and conditions of Micron's
standard stock option agreement and 1995 Stock Option Plan
where applicable, and as follows:
(a) 400,000 shares shall be issued under Micron's
1995 Stock Option Plan and shall vest at the rate
of 20% per year;
(b) 100,000 shares shall be granted under
Micron's 1995 Stock Option Plan and shall vest
only after completion of seven years of employment
with Micron, but with vesting accelerated in full
if prior to such seven year period (i) the Company
earns $[XX] billion in net revenue from its core
PC business, (ii) the Company attains a [XX]% net
margin from its core PC business and (iii) the
Company attains cash balance increases of $[XX]
million over a twelve-month period from its core
PC business, in each case over the four
immediately preceding fiscal quarters;
(c) 75,000 shares shall be granted as a non-plan
grant outside of Micron's 1995 Stock Option Plan
and shall vest only after completion of seven
years of employment with Micron, but with vesting
accelerated in full if prior to such seven year
period (i) the Company earns $[XX] billion in net
revenue from its core PC business, (ii) the
Company attains a [XX]% net margin from its core
PC business and (iii) the Company attains cash
balance increases of $[XX] million over a twelve-
month period from its core PC business, in each
case over the four immediately preceding fiscal
quarters; and
(d) 75,000 shares shall be granted as a non-plan
grant outside of Micron's 1995 Stock Option Plan
and shall vest only after completion of seven
years of employment with Micron, but with vesting
accelerated in full if prior to such seven year
period (i) the Company earns $[XX] billion in net
revenue from its core PC business, (ii) the
Company attains a [XX]% net margin from its core
PC business and (iii) the Company attains cash
balance increases of $[XX] million over a twelve-
month period from its core PC business, in each
case over the four immediately preceding fiscal
quarters.
[XX] CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN
PORTIONS OF THIS DOCUMENT. SUCH OMITTED PORTIONS HAVE
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE>
For purposes of this paragraph 4 herinabove, the
provisions of Micron's 1995 Stock Option Plan regarding
vesting of options in the event of a Change in Control shall
apply to all shares in the option granted to you. The
portion of the option for non-plan shares may not be
exercised while any portion of the option for shares under
the Micron 1995 Stock Option Plan are vested and
exercisable. The term "core PC business" as used above
includes Micron's personal computer, server, and related
peripheral equipment business, together with any affiliated
businesses, but expressly excludes herein the Spectek and
Micron Custom Manufacturing Services, Inc. (or MCMS, Inc.)
businesses or operations. For purposes of the
subparagraphs 4(b)(iii), 4(c)(iii) and 4(d)(iii), above, any
proceeds from a transaction involving the Company's
divestiture, sale, disposal or transfer of any of its
interest in Micron Custom Manufacturing Services, Inc. will
be excluded for purposes of determining the Company's cash
balance. Finally, Micron's Board of Directors may at any
time and in its discretion lower the financial conditions
for accelerated vesting of the shares as set forth in
subparagraphs 4(b) through 4(d), above.
5. Micron will pay for reasonable relocation
expenses, including associated Federal, State and FICA
taxes.
6. Your Medical, Dental and Vision insurance coverage
will become effective after completion of the month of hire
plus an additional calendar month of employment. Benefit
plans are subject to change or amendment by Micron.
Benefits for pre-existing conditions are not
provided under Micron's medical plan during the first eleven
months of coverage for treatment recommended or received
within the six-month period ending on the enrollment date.
Credit will be given for previous coverage under most
medical insurance programs as long as there is no break in
coverage over 63 days prior to your hire date at Micron.
This is no pre-existing condition waiting period for
pregnancy. If you are eligible for COBRA coverage through
your prior employer, you may want to continue that coverage
in conjunction with Micron's medical plan until you have
completed the waiting period for coverage, if necessary.
If you have any questions or desire further
clarification of this offer of employment, please contact
me. If you are in agreement with the terms and conditions
of this offer, please sign where indicated and return this
letter to me.
We hope this new relationship will be productive
for you and Micron. Everyone is looking forward to your
contribution to the success of the company.
Very truly yours,
Joseph M. Daltoso
Chairman and Chief Executive
Officer
Approved and accepted this 13th day of January, 1998.
---- -------
By: /s/ Joel J. Kocher
------------------------------
Joel J. Kocher
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-03-1998
<PERIOD-END> FEB-26-1998
<CASH> 341,075
<SECURITIES> 10,034
<RECEIVABLES> 158,847
<ALLOWANCES> 7,740
<INVENTORY> 54,986
<CURRENT-ASSETS> 599,441
<PP&E> 200,117
<DEPRECIATION> 55,639
<TOTAL-ASSETS> 744,911
<CURRENT-LIABILITIES> 319,859
<BONDS> 0
0
0
<COMMON> 957
<OTHER-SE> 392,081
<TOTAL-LIABILITY-AND-EQUITY> 744,911
<SALES> 1,053,650
<TOTAL-REVENUES> 1,053,650
<CGS> 971,978
<TOTAL-COSTS> 1,164,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,183)
<INCOME-PRETAX> 49,537
<INCOME-TAX> 23,707
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,830
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
