<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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: 0-19272
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MICRONICS COMPUTERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0132288
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
45365 NORTHPORT LOOP WEST
FREMONT, CALIFORNIA 94538-6417
(Address of principal executive offices)
(510) 651-2300
(Registrant's telephone number, including area code)
---------------
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. [X] Yes [ ] No
At April 30, 1997 there were 14,074,471 shares of the registrant's common
stock outstanding.
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MICRONICS COMPUTERS, INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1: Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and September 30, 1996.................................................. 3
Consolidated Statements of Results of Operations
for the three months and six months ended
March 31, 1997 and March 31, 1996...................................................... 4
Consolidated Statements of Cash Flows for
the six months ended March 31, 1997
and March 31, 1996..................................................................... 5
Notes to Consolidated Financial
Statements............................................................................. 6
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................................................................... 7
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders............................................ 10
Item 6: Exhibits and Reports on Form 8-K............................................................... 10
SIGNATURES ............................................................................................... 11
EXHIBITS ...................................................................................................... 12
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
MICRONICS COMPUTERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents ................ $23,400 $19,876
Short-term investments ................... 2,502 3,188
Accounts receivable, net ................. 15,842 20,685
Inventories .............................. 7,835 9,836
Prepaid expenses ......................... 1,968 1,857
------- -------
Total current assets .................. 51,547 55,442
Property and equipment, net .................. 5,158 5,298
Other assets ................................. 39 823
------- -------
$56,744 $61,563
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................... $ 7,445 $11,587
Other accrued liabilities ................ 7,791 6,088
------- -------
Total current liabilities ............. 15,236 17,675
Stockholders' equity:
Preferred stock .......................... -- --
Common stock ............................. 140 139
Additional paid-in capital ............... 33,141 32,968
Retained earnings ........................ 8,220 10,718
Unrealized gain on investments ........... 7 63
------- -------
Total stockholders' equity ............ 41,508 43,888
------- -------
$56,744 $61,563
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $ 24,282 $ 40,652 $ 60,470 $ 100,867
Cost of sales .......................... 22,154 36,623 53,657 89,321
--------- --------- --------- ---------
Gross profit ........................... 2,128 4,029 6,813 11,546
Operating expenses:
Research and development ........... 1,409 1,880 2,719 3,704
Selling and marketing .............. 2,613 1,705 4,755 4,229
General and administrative ......... 1,114 1,690 2,337 3,259
--------- --------- --------- ---------
Total operating expenses ........ 5,136 5,275 9,811 11,192
--------- --------- --------- ---------
Income (loss) from operations .......... (3,008) (1,246) (2,998) 354
Interest income ........................ 292 150 597 234
Interest expense ....................... -- (110) -- (179)
Other income (expense), net ............ 52 (276) (97) (387)
--------- --------- --------- ---------
Total other income (expense) .... 344 (236) 500 (332)
--------- --------- --------- ---------
Income (loss) before income taxes ...... (2,664) (1,482) (2,498) 22
Provision (benefit) for income taxes ... -- (566) -- 9
--------- --------- --------- ---------
Net income (loss) ...................... $ (2,664) $ (916) $ (2,498) $ 13
========= ========= ========= =========
Net income (loss) per common share ..... $ (0.19) $ (0.07) $ (0.18) $ 0.00
========= ========= ========= =========
Common and common equivalent shares used
in computing per share amounts ......... 13,979 13,765 13,947 13,759
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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MICRONICS COMPUTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................................. $ (2,498) $ 13
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ................................... 566 883
Loss on disposal of property and equipment ...................... 75 --
Gain on exercise of Osborne put option .......................... (44) --
Deferred taxes .................................................. -- 177
Changes in operating assets and liabilities:
Accounts receivable .......................................... 4,843 11,595
Inventories .................................................. 2,001 17,597
Prepaid expenses ............................................. (111) 43
Accounts payable ............................................. (4,142) (14,386)
Other accrued liabilities .................................... 1,703 (1,253)
Income taxes receivable ...................................... -- 917
-------- --------
Net cash provided by operating activities .......................... 2,393 15,586
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments ................................ (4,569) (1,476)
Maturities or sales of short-term investments ...................... 5,199 14
Exercise of Osborne put option ..................................... 794 --
Purchases of property and equipment, net ........................... (501) (142)
Deposits and other assets .......................................... 34 20
-------- --------
Net cash provided by (used for) investing activities ............... 957 (1,584)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt principal ........................................ -- (26)
Proceeds from issuance of common stock, net ........................ 174 307
-------- --------
Net cash provided by financing activities .......................... 174 281
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 3,524 14,283
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 19,876 4,537
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 23,400 $ 18,820
======== ========
Cash payments for:
Interest ........................................................... -- 138
</TABLE>
See accompanying notes to consolidated financial statements.
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MICRONICS COMPUTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation of the financial position,
operating results and cash flows for those periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for the full fiscal year. The accompanying
consolidated financial statements should be read together with the audited
consolidated financial statements and notes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 1996.
Certain September 30, 1996 balance sheet accounts contain
reclassifications from those presented in the Company's Form 10-K filed with the
SEC in order to be consistently presented in relation to March 31, 1997.
NOTE 2. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share has been computed based on the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares result from the assumed exercise of outstanding stock
options that have a dilutive effect when applying the treasury stock method.
NOTE 3. SHORT-TERM INVESTMENTS
Short-term investments consist of corporate bonds and U.S. agency
securities with original maturities beyond three months and less than twelve
months. These investments are carried at amortized cost which approximates fair
value.
NOTE 4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
(UNAUDITED)
<S> <C> <C>
Raw materials .......................... $5,222 $6,497
Work-in-process ........................ 948 1,053
Finished goods ......................... 1,665 2,286
------ ------
$7,835 $9,836
====== ======
</TABLE>
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The Company's Common Stock price may be subject to significant volatility.
For any given quarter, a shortfall in the Company's announced revenue or
earnings from the levels expected by securities analysts could have an
immediate and adverse effect on the trading price of the Company's Common
Stock. The Company may not learn of, or be able to confirm, revenue or
earnings shortfalls until late in the quarter or following the end of the
quarter. In general, the Company participates in a very dynamic high
technology industry which can result in significant fluctuations in the
Company's Common Stock price at any time.
Except for the historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, that involve
risks and uncertainties, including the rate of orders for the Company's
products, the timely availability and acceptance of new products, changes
in management of the Company, difficulties experienced by the Company with
respect to hiring and retaining qualified personnel, the impact of
competitive products and pricing, the impact of the Company's efforts to
implement its evolving long-term strategy and the other risks detailed
below including, without limitation, the risks described in the section
labeled "Factors That May Affect Future Results," and the risks described
from time to time in the Company's other reports filed with the Securities
and Exchange Commission. The actual results that the Company achieves may
differ materially from any forward-looking projections due to such risks
and uncertainties. Words such as "believes," " anticipates," " expects,"
"future," "intends," and similar expressions are intended to identify
forward-looking statements but are not the exclusive means of identifying
such statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Micronics Computers, Inc. operates in a rapidly changing environment that
involves a number of risks, some of which are beyond the Company's control.
The following discussion highlights some of those risks.
The Company's operating results are subject to quarterly and other
fluctuations due to a variety of factors, including the volume and timing
of orders received, potential cancellation or rescheduling of orders,
competitive pricing pressures, availability and cost of component parts and
materials from the Company's suppliers, the adequate forecasting of the
mixed product demand due to production lead times and capacity constraints,
the timing of new product announcements and introductions by the Company or
its competitors, changes in the mix of products sold, research and
development expenses associated with new product introductions, the timing
and level of development costs, market cyclical nature of the semiconductor
industry and economic conditions generally or in various geographic areas
and the Company's ability to develop new product features.
In recent quarters, the Company has experienced declining net sales and has
incurred net losses as a result of competetive pressures and the effects of
the slowing order rate from its major OEM and government customers.
The Company's ability to reduce the trend of declining net sales, which
have yielded net losses, is dependent on several factors including
increased order rates for the Company's products, successful and timely
development and market acceptance of the Company's next generations
products and successful competition with the Company's competitors on a
price and performance basis. Many of these factors are not within the
Company's control, and if order rates for the Company's products fail to
increase, if the Company's next generation products are not successfully
and timely developed and accepted by the Company's customers, or if the
Company cannot
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<PAGE> 8
successfully compete with its competitors, many of whom have substantially
greater resources than the Company, the Company's net sales will continue
to decline.
COMPARISON OF RESULTS
NET SALES Net sales were $24.3 million for the three months ended March
31, 1997, a decrease of 40% from $40.7 million for the similar period ended
March 31, 1996. Net sales for the six months ended March 31, 1997 totaled $60.5
million, down 40% from $100.9 million through last year's second quarter. The
decrease in the quarter and the six month sales between comparable periods are
principally attributable to lower sales to OEM and government markets and
product introduction delays related to supplier inability to provide component
parts.
COST OF SALES/GROSS PROFIT The Company's gross profit as a percentage of
net sales was 8.8% and 9.9% for the second quarter of fiscal 1997 and the second
quarter of fiscal 1996, respectively. Gross profit margin percentage was 11.3%
and 11.4% for the six months ended March 31, 1997 and 1996, respectively.
OPERATING EXPENSES Operating expenses for the second quarter of fiscal
1997 decreased $139,000 from the comparable quarter in fiscal 1996 and were $1.4
million lower for the six months ended March 31, 1997 compared to the prior year
period. Research and development and general and administrative expenses
decreased $1.1 million for the three months ended March 31, 1997 to $2.5
million compared to $3.6 million for the comparable period ended March 31, 1996
and decreased $1.9 million for the six months ended March 31, 1997 to $5.1
million compared to $7.0 million for the six months ended March 31, 1996. These
decreases were partially offset by increases in selling and marketing expenses
which increased $.9 million and $.5 million for the three months and six months
ended March 31, 1997, respectively. The net operating expense reductions in the
three and six month periods in fiscal year 1997 compared to fiscal year 1996
are due to decreases in the number of employees mainly attributable to the
consolidation of Micronics and Orchid organizations offset by cost increases
which are primarily the result of expanding sales and marketing efforts in the
distribution and international sales channels.
INTEREST AND OTHER INCOME AND EXPENSE Interest income for the quarter
ended March 31, 1997 increased $142,000 or 95% compared to the prior year period
and increased $363,000 or 155% for the first six months of fiscal 1997 compared
to the comparable prior year period due to higher invested balances. The Company
did not incur any interest expense for the three and six months periods ended
March 31, 1997. Other expense for the six months of fiscal year 1997 is
primarily loan fees on the $20 million line of credit signed by the Company in
September 1995.
PROVISION FOR INCOME TAXES The Company's estimated effective tax rate was
0.0% and 41.0% for the six months ended March 31, 1997 and 1996, respectively.
The provision for income taxes for each period was computed by applying the
estimated fiscal year effective tax rate (net federal and state statutory rate
as adjusted for various tax credits and the estimated tax effect of certain
permanent items) to income before income taxes for each period. At September 30,
1996, the Company established a full valuation allowance against its deferred
tax assets, and the Company has recorded no additional benefit associated with
its losses.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital at March 31, 1997 was $36.3 million, down $1.5 million
from $37.8 million at September 30, 1996. The decrease in working capital was
primarily due to a decrease in accounts receivable of $4.8 million and
inventories of $2.0 million which was partially offset by a decrease of $4.1
million in accounts payable. The decrease in inventories was largely
attributable to improved inventory management combined with increased emphasis
on the liquidation of potentially excess or obsolete inventory. Accounts
receivable decreased principally
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<PAGE> 9
due to the lower sales in the quarter. The decrease in accounts payable resulted
from the lower levels of net sales and related purchasing activity.
At March 31, 1997, the Company's principal sources of liquidity included
$25.9 million of cash and cash equivalents and short-term interest-bearing
financial instruments. The Company also has a secured line of credit of $20
million, expiring in September 1997. Borrowings under this line of credit are
limited to specific percentages of eligible accounts receivable and are
collateralized by a lien on substantially all assets of the Company. Borrowing
availability under this line is reduced by outstanding advances and letters of
credit. There have been no borrowings under this line of credit during the six
months ended March 31, 1997.
Management believes existing cash and cash equivalents and short-term
investments, together with cash generated by operations and the Company's
available borrowing capacity, will provide sufficient funds to meet the
Company's operating and capital requirements over the next twelve months.
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<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company filed on Form 8-K on March 5, 1997 to report the results
of votes of security holders at the Annual Meeting of the Stockholders of the
Company held on February 27, 1997 (see Item 6(b)).
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.01 Letter of Intent, dated February 25, 1997, between the
Company and Micron Electronics, Inc*
10.02 Employment Agreement dated March 14, 1997 between the
Conpany and Shanker Munshani
11.01 Computation of Net Income Per Share
27.01 Financial Data Schedule
(b) Reports on Form 8-K.
A Form 8-K was filed by the Company on March 5, 1997 to report the
results of votes of shareholders at the Company's Annual Meeting
held on February 27, 1997.
* Confidential treatment has been requested for certain portions of
this document. Such portions have been omitted from this filing and
have been filed separately with the Securities and Exchange
Commission.
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<PAGE> 11
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.
Micronics Computers, Inc.
----------------------------
Registrant
Date: May 15, 1997 /s/ BILL R. FINLEY
-------------------- ----------------------------
Bill R. Finley
Vice President, Finance and
Chief Financial Officer
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<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.01 Letter of Intent, dated February 25, 1997, between the
Company and Micron Electronics, Inc*
10.02 Employment Agreement dated March 14, 1997 between the
Conpany and Shanker Munshani
11.01 Computation of Net Income Per Share
27.01 Financial Data Schedule
* Confidential treatment has been requested for certain portions of
this document. Such portions have been omitted from this filing and
have been filed separately with the Securities and Exchange
Commission.
</TABLE>
<PAGE> 1
EXHIBIT 10.01
MICRON
ELECTRONICS, INC.
- --------------------------------------------------------------------------------
LETTER OF INTENT
FEBRUARY 25, 1997
Micron Electronics, Inc. ("Micron") and Micronics Computers, Inc. ("Micronics")
agree that they shall negotiate in good faith to complete the necessary
agreements to memorialize the understanding set forth below.
A. INTENT:
1. Micron has purchased motherboards and other products (the "Products")
from Micronics in the past, is currently purchasing such Products from
Micronics and intends to continue to make such purchases from
Micronics.
2. Given the importance of a constant, ongoing, uninterruptable source of
Product to Micron's business, Micron desires that Micronics take
certain steps to ensure that Micron shall be able to obtain
Micronics-designed Products even in the event that Micronics is unable
to supply such Product itself, and Micronics is willing to take steps
to ensure such a source.
3. The parties therefore agree that they shall negotiate and enter into
agreements to formalize their existing understanding under which: a)
Micronics shall place the necessary technology (the "Technology") into
a mutually agreeable escrow account so that a competent manufacturer of
computer motherboards and similar products would be able to manufacture
all Micronics-designed Products that Micronics' sells or has sold to
Micron, and such Technology shall be released to Micron in the event
that Micronics is unable to supply Micron with Product as set forth
below; b) the parties shall cooperatively qualify a mutually acceptable
third party manufacturer to manufacture Products for Micron and that
Micronics shall, within the time table set forth below, exercise its
best efforts to ensure that such manufacturer is capable of
manufacturing Products Micronics sells to Micron; and c) in the event
Micronics is unable to completely fulfill Micron's orders for Product
due to problems outside the ordinary course of business (e.g. financial
difficulties, force majeure, or other problems outside of Micronics'
control), Micronics agrees that upon Micron obtaining Micronics'
written approval, which approval shall not be unreasonably withheld,
Micron may negotiate directly with Orient Semi-Conductor Electronics,
Ltd. ("OSE") to obtain an amount of Product sufficient to meet Micron's
needs. Notwithstanding the foregoing, in a force majeure situation,
Micronics agrees that if it does not provide Micron with approval
pursuant to this section 3, subsection (c) within three (3) business
days of Micron's request,
1
**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 2
Micron may negotiate the purchase of Product directly with OSE without
first obtaining Micronics' approval.
4. Micron agrees that in the event it obtains the right to purchase
Product directly from OSE pursuant to section 3(c) above, upon
Micronics providing Micron with reasonable assurance that it is able to
reinitiate manufacture of Products, Micron shall cease purchasing
Products directly with OSE, and shall reissue all pending Purchase
Orders to Micronics under the same terms and conditions previously in
effect between Micron and Micronics.
5. The parties agree that execution of this Letter of Intent shall satisfy
the requirements of section 3(a) of the Operating Guidelines dated July
30, 1996 that Micron and Micronics execute a Motherboard Manufacturing
License Agreement.
B. THE SECONDARY MANUFACTURING SOURCE
1. The parties agree that within 30 days of the signing of this Letter of
Intent they shall cooperatively qualify a mutually acceptable third
party manufacturing contractor for manufacturing Product. Micronics
agrees that it shall expedite the initiation of manufacturing at such
third party manufacturing contractor's facility, and shall make its
best efforts to start manufacturing at such facility within 60 days of
the signing of this Letter of Intent, unless otherwise requested by
Micron.
2. Micronics further agrees that within 90 days of the initiation of
production of Products at the third party manufacturing contractor, it
shall make its best efforts to ensure that such contractor will be
capable of producing all such Product Micronics sells to Micron.
C. THE ESCROW ACCOUNT
1. Micronics will place the latest version of all the Technology into a
mutually agreeable escrow account, at Micron's expense, within 30 days
of the signing of this letter agreement, and Micronics shall keep the
Technology updated for all Products. The Technology shall include
information concerning not only Products Micronics is currently selling
to Micron but also all Products Micronics has sold to Micron in the
past.
2. The "Technology" shall be provided as a "Manufacturing Package"
including Detailed Bills of Materials, Gerber Files, PBA and PB
Drawings, Specifications, CAD Drawings, Schematics, known errata,
Object Code BIOS all ECN and OCNs, Test Programs, fixtures and/or
Fixture Designs and Specifications, Test Procedures, and any other
materials necessary to provide Micron the necessary know how to
manufacture (or have manufactured on its behalf) the Products. The
Technology shall be separated into distinct Manufacturing Packages with
each such Manufacturing Package containing all Technology necessary so
that a competent manufacturer could manufacture a particular model or
version of the Products.
2
<PAGE> 3
3. The Escrow Agreement between Micronics and the escrow agent shall
require the escrow agent to release a Manufacturing Package to Micron
if any of the conditions set forth in the Manufacturing Rights section
below occur.
D. MANUFACTURING RIGHTS
1. Micronics and Micron agree that Micron shall have the right to access
the Technology held in the above-mentioned escrow account, and to
initiate manufacture of a particular Product in the event:
(a) Micron submits, or has submitted, Purchase Orders for the
purchase of 65,000 units of new Product to which such
Manufacturing Package relates; or
(b) [ ]** days following Micronics' first delivery of a
production unit of a new Product to Micron to which such
Manufacturing Package relates; or
(c) Micronics fails to completely fulfill any Micron Purchase
Order which Micronics has previously acknowledged and
accepted, for the purchase of the Product to which such
Manufacturing Package relates and is unable to cure such
failure upon notice within five (5) business days; or
(d) Micron reasonably believes that Micronics is either:
(1) currently unable or (2) within the next thirty (30) days
is unlikely to be able to completely meet Micron's Purchase
Orders that Micronics has acknowledged and accepted for
Products and within ten (10) business days of Micron's
informing Micronics of its concern, Micronics is unable to
cure the problem by providing Micron with reasonable
assurances of its ability to provide such Product.
Notwithstanding the foregoing, the parties agree that in the
event Micronics' failure to completely meet such Purchase
Orders is caused by the cross-industry failure of a component
manufactured by Intel Corporation necessary to manufacture the
Products, which failure has been acknowledged by Intel
Corporation, Micron may not exercise its right to manufacture
such Product until after fifteen (15) business days have
passed from the date Micron first informed Micronics of its
concern.
(e) For the purposes of subsections (a) and (b) of this section, a
"new" Product shall be a Product that utilizes a new core
logic or that contains new features.
2. The parties further agree that the 65,000 units referenced in clause
1(a) shall include both units of product covered by Purchase Orders
that Micron may submit to Micronics for a particular Product after the
signing of this Letter of Intent and also any units of such Product
Micron may have already ordered from Micronics.
3. Micron agrees that within fifteen (15) business days of its receipt of
a "complete" Manufacturing Package relating to a particular Product
from the escrow agent, Micron shall
3
**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 4
pay Micronics $[ ]**. A Manufacturing Package shall be "complete"
when it contains all information necessary so that a competent
manufacturer could initiate production on that Product. If Micron
determines that a Manufacturing Package is not "complete" Micronics
shall supplement the Manufacturing Package with the information
reasonably necessary to complete the Manufacturing Package so that a
competent manufacturer could initiate production of the Product.
4. Micronics agrees that in the event Micron obtains a Manufacturing
Package for a particular Product pursuant to the terms of the Escrow
Agreement referenced herein, Micronics shall provide Micron, at
Micronics' expense, a reasonable level of telephone support to assist
in the start up of manufacturing (during the initial thirty (30) days
of Micron obtaining a Manufacturing Package). Additional support shall
be on a time and material basis only.
5. Upon Micron obtaining the right to manufacture a Product:
(a) Micron will pay Micronics $[ ]** per motherboard (the
"Royalty") that Micron (or its subcontracting manufacturers)
manufactures:
(b) Micron may manufacture (or have a third party manufacture on
its behalf) Product anywhere in the world except at the Orient
Semiconductor Electronics facility in Taiwan (unless the terms
of section A3(c), above, are met);
(c) Micron will not label any Products it manufactures with
Micronics logos;
(d) All intellectual property rights relating to the Products
currently owned by Micronics will remain Micronics properly;
(e) Micron agrees that it shall not manufacture (or have
manufactured by a third party manufacturer on its behalf) more
Product than the amount of Product it purchases from
Micronics. Notwithstanding the foregoing, in the event
Micronics is unable to provide Micron with sufficient Product
to satisfy fifty percent (50%) of Micron's total demand for
such Product, Micron may manufacture (or have manufactured by
a third party manufacturer on its behalf) more than fifty
percent (50%) of the total amount of such Product it requires;
(f) Upon ten (10) days notice Micronics shall have the right to
audit Micron's records at Micronics' expense to determine
whether Micron has paid Micronics the proper Royalty for the
Product it has purchased. Micron agrees that in the event
Micronics' audit discovers an uncontested underpayment, Micron
shall promptly pay such uncontested amounts;
(g) Micron agrees that it shall pay any reasonable BIOS or similar
royalties, or fees or taxes on the Product Micron may
manufacture (or have manufactured by a third party
manufacturer on its behalf);
4
**CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN PORTIONS OF THIS
DOCUMENT. SUCH PORTIONS HAVE BEEN OMITTED FROM THIS FILING AND HAVE BEEN
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE> 5
(h) Micron shall use all Product Micron may manufacture (or have
manufactured by a third party manufacturer on its behalf) for
the manufacture of computers and similar products and Micron
expressly agrees that it shall not sell such Product as a
finished good on the open market;
(i) Micron agrees that it shall not sublicense its right to
manufacture (or have manufactured by a third party
manufacturer on its behalf) Product without receiving the
prior written approval of Micronics.
6. The parties further agree that for Products manufactured by Micron (or
a third party manufacturer on its behalf), Micronics shall provide
Micron with solely a warranty on the design of the Technology, and thus
that Micronics shall warrant that the Products are free from design
defects and do not infringe upon the intellectual property rights of
any third party. The parties expressly agree that Micronics shall not
provide Micron a warranty on the workmanship of any Products Micron may
manufacture or have manufactured by a third party manufacturer on its
behalf. Notwithstanding the foregoing, Micronics agrees that it shall
continue to provide Micron with its standard warranty on all products
Micronics supplies to Micron.
7. Micron further agrees that upon obtaining its right to manufacture
Product under either subsections D1(a) or (b), it shall not exercise
such right until such time Micron reasonably believes that Micronics is
either: (1) currently unable or (2) within the next thirty (30 days is
unlikely to be able to completely meet Micron's Purchase Orders that
Micronics has acknowledged and accepted for Products within ten (10)
business days of Micron's informing Micronics of its concern, Micronics
is unable to cure the problem by providing Micron with reasonable
assurances of its ability to provide such Product. Notwithstanding the
foregoing, the parties agree that in the event Micronics' failure to
completely meet such Purchase Orders is caused by the cross-industry
failure of a component manufactured by Intel Corporation necessary to
manufacture the Products, which failure has been acknowledged by Intel
Corporation, Micron may not exercise its right to manufacture Product
until after fifteen (15) business days have passed from the date Micron
first informed Micronics of its concern.
MICRONICS COMPUTERS, INC. MICRON ELECTRONICS, INC.
By:/s/ By:/s/
--------------------------------- ---------------------------------
Title: Vice President and CFO Title: Director of Procurement
------------------------------ ------------------------------
Date: February 25, 1997 Date: 2-25-1997
------------------------------- ------------------------------
5
<PAGE> 1
EXHIBIT 10.02
MICRONICS COMPUTERS, INC.
-------------------------
EMPLOYMENT AGREEMENT
This Agreement is entered into as of March 14, 1997 by and between
Micronics Computers, Inc., a Delaware corporation (the "Company"), having its
principal place of business at 45365 Northport Loop West, Fremont, California
94538, and Shanker Munshani ("Employee"), residing at 3394 Shadow Leaf Drive,
San Jose, California 95132. In consideration of the terms and conditions set
forth in this Agreement, the parties agree as follows:
1. EMPLOYMENT AND DUTIES.
1.1 APPOINTMENT. The Company hereby continues to employ
Employee and Employee hereby continues to accept employment with the Company
upon the terms and conditions set forth in this Agreement. During the term of
this Agreement, Employee will be President of the Company, and his duties will
be executive in nature, consistent with his title. He will report to the full
Board of Directors (the "Board"). Employee currently serves as a member of the
Board and will be renominated as a member of the Board so long as Employee
remains an employee of the Company on the date of renomination. Employee hereby
represents and warrants to the Company that he is free to enter into and fully
perform this Agreement and the documents referred to herein.
1.2 NATURE OF EMPLOYMENT. During the term of his employment
with the Company, Employee will devote his full skill, efforts, business time
and attention to his employment with the Company. Employee will not perform
services for compensation for any entity or person other than the Company
without the prior express written consent of the Company after approval by
resolution of the Board. However, Employee may participate in investment or
other activities unrelated to employment for another for compensation to the
extent that such activities do not preclude or conflict with his employment
under this Agreement.
2. TERM. The term of this Agreement will commence as of the
date hereof and will terminate on the earlier of the death of the Employee or on
the first anniversary of the date of this Agreement (the "Expiration Date").
3. TERMINATION OF EMPLOYMENT DURING TERM.
3.1 DEFINITIONS.
3.1.1 "Good Cause" shall mean (a) habitual neglect
or malfeasance of duty that continues uncured after 90 days notice by the
Company to Employee, (b) dishonesty, (c) conviction of a felony, (d) inability
to render services under this Agreement for any period in excess of 90 days out
of any twelve-month period (whether due to ill health or otherwise), (e) failure
to cure or cease repeated or a serious violation or violations of the Company's
published and written rules, or of the directions of the Board, that remain or
remains uncured 90 days after receipt of written notice thereof or (f) material
or repeated breach of this Agreement, or of the Proprietary Rights and
Confidentiality Agreement, dated November 12, 1994, between the Company and
Employee (the
-1-
<PAGE> 2
Micronics/Munshani
Employment Agreement
"Proprietary Rights Agreement"), that remains uncured 90 days after receipt of
written notice thereof.
3.1.2 "Severance" shall mean the remaining salary
that may be earned by Employee from the date of such termination to the end of
the term hereof.
3.2 TERMINATION BY EMPLOYEE. Employee, in his sole
discretion, may terminate his employment and his position as an officer of the
Company at any time prior to the Expiration Date upon giving the Company at
least 45 days prior written notice delivered to the other members of the Board
at their last known addresses. Such termination will also terminate this
Agreement.
3.3 TERMINATION BY THE COMPANY. The Company, in the sole
discretion of the Board, may terminate the employment of Employee and his
position as an officer of the Company prior to the Expiration Date, with or
without Good Cause and without prior notice. Termination by the Company for Good
Cause will terminate this Agreement. However, if the Company terminates without
Good Cause, Severance will be paid to Employee over the remaining term of this
Agreement, payable as and when Employee would have been paid had he remained
employed by the Company to the date of each payment and this Agreement will be
terminated in every other respect as of the date Employee ceases to be an
officer and employee of the Company.
4. COMPENSATION AND EXPENSES. In consideration for the services
to be rendered to the Company under this Agreement in all capacities, including,
without limitation, services as an officer, employee, director or member of any
committee of the Board of the Company or any subsidiary thereof, during the term
of this Agreement, Employee will be paid as follows:
4.1 SALARY. Retroactive from October 1, 1995, Employee's
salary will be $230,000 per annum. Changes thereafter, either up or down, will
be determined by the Board, in its sole discretion, at any time or from time to
time. Any such salary will be payable in installments, as earned, less any
normal payroll deductions, in accordance with prevailing payroll practices of
the Company from time to time and shall be proportionately reduced to the extent
that the Employee is not working full time for the Company. For purposes of this
Section 4.l, "full time" shall be defined by the Company's policy, as amended
from time to time, concerning the number of hours which must be worked by an
individual to be considered a full-time employee and, if no policy is set, "full
time" shall mean at least 40 hours per week.
4.2 SEMI-ANNUAL BONUSES. The Board, in its sole discretion,
may determine by resolution to pay Employee all or any portion of the following
semi-annual bonuses upon the achievement of the following milestones in any Half
Fiscal Year (defined below):
4.2.1 Definitions.
(a) "Half Fiscal Year" shall mean a six-
month period commencing on April 1 or on October 1 in any calendar year during
the term of this Agreement and until April 1, 1998 so long as Employee is
employed full-time by the Company for the entire six-month period, with the
first such Half Fiscal Year to commence on April 1, 1997 and the last such Half
Fiscal Year to commence October 1, 1997.
-2-
<PAGE> 3
Micronics/Munshani
Employment Agreement
(b) "Net Income" shall mean net income of
the Company, determined in accordance with generally accepted accounting
principles for financial reporting purposes, consistently applied.
(c) "Budget" shall mean the Company's Net
Income appearing in the Company's budget prepared and approved by the Board just
prior to, or within 30 days after commencement of, the Company's full fiscal
year in which the Half Fiscal Year falls, as such budget may be amended by
resolution of the Board and, if no such budget is prepared or approved with
respect to any Half Fiscal Year, the term "Budget" shall mean at least $500,000
in Net Income for that Half Fiscal Year.
4.2.2 Net Income Bonus. If actual Net Income for
any Half Fiscal Year is 80% or more of Budget, then, a "net income bonus,"
calculated as follows, will be payable in the Board's sole discretion with
respect to such Half Fiscal Year: (a) an amount between zero and $60,000, in
direct proportion to the amount of actual Net Income between 80% and 100% of
Budget (e.g., if actual net income is 82% of Budget, then the amount is $6,000,
or one-tenth of $60,000); plus (b) $5 for each $1,000 that actual Net Income
exceeds Budget.
4.2.3 Other Bonuses. If other milestones or
achievements that are approved by resolution of the Board for the payment of
bonuses to Employee are achieved, then a bonus in an amount up to $20,000 will
be payable in the Board's sole discretion with respect to any Half Fiscal Year.
During the term of this Agreement, Employee will not be entitled to any payments
under the Company's Cash Bonus Plan and Profit Sharing Plan.
4.2.4 Bonus Limitation. Notwithstanding any
other provision of this Section 4.2, no bonus described in this Section 4.2
shall be paid to Employee in respect of any Half Fiscal Year if actual Net
Income for such Half Fiscal Year is zero or a negative number and the total of
the bonuses described in this Section 4.2 for any Half Fiscal Year shall be no
greater than the amount by which actual Net Income exceeds zero with respect to
such Half Fiscal Year.
4.3 ACQUISITION BONUS. In addition to the bonuses
provided for in Section 4.2, the Company will pay to Employee a cash bonus of
$100,000, payable at the sole discretion of the Board, if, during the term
hereof and prior to September 15, 1997, the Company consummates (a) a merger,
consolidation, reorganization or other business combination pursuant to which
the business of the Company is combined with that of another party and the
shareholders of the Company cease to hold at least a majority of the voting
power of the surviving party or (b) the acquisition, directly or indirectly, by
another party of more than 50% of the capital stock or assets of the Company by
way of a negotiated purchase (each case under clauses (a) or (b) above being
referred to as a "Corporate Event").
4.4 WHEN BONUS EARNED AND PAID. Each bonus provided for
under this Section 4 shall be paid to Employee within 10 days after the Board
has approved the same, in its discretion, by resolution duly adopted at a
meeting or by written consent and (a) with respect to the bonuses described in
Section 4.2, actual Net Income has been determined for such Half Fiscal Year or
(b) with respect to the bonus described in Section 4.3, after the closing of the
Corporate Event. For purposes of such meeting or written consent, Employee may
be counted to establish a quorum
-3-
<PAGE> 4
Micronics/Munshani
Employment Agreement
but Employee's vote will not be counted in connection with such approval and
such approval may occur subsequent to the termination of this Agreement.
Accordingly, computation of any amount available for distribution shall not be
construed to create Employee's rights to receive "wages" until Board approval
has been obtained and such 10 day period has run.
4.5 BENEFITS. Except as to participation in the Company's
Cash Bonus Plan or its Profit Sharing Plan, Employee will be provided with such
vacation, disability, insurance and other benefits as are generally provided to
any employee of the Company.
4.6 EXPENSES. The Company will reimburse Employee for all
reasonable and necessary expenses incurred by Employee in connection with the
Company's business, provided that such expenses are deductible to the Company,
are in accordance with applicable policy set by the Board from time to time and
are properly documented and accounted for in accordance with the policy of the
Company and with the requirements of the Internal Revenue Service.
5. COMPANY STOCK. Employee has been granted, as of the date
hereof four separate options for the purchase in the aggregate of shares of the
Company's Common Stock, described as follows:
<TABLE>
<CAPTION>
Date of Grant Number of Shares Exercise Price Per Share
------------- ---------------- ------------------------
<S> <C> <C>
11/14/94 50,000 $4.75
08/01/95 50,000 $4.00
11/30/95 50,000 $3.375
01/17/96 50,000 $3.375
</TABLE>
An additional option for 75,000 shares of the Company's Common Stock will be
granted under the 1989 Stock Option Plan of the Company subsequent to the
execution of this Agreement at an exercise price equal to the closing price of
the Company's Common Stock on the Nasdaq National Market on the day preceding
the date of Board approval of such grant. The new option will be (a) exercisable
over a five-year period, (b) will vest monthly, in arrears, over a four-year
vesting period commencing as if the option had commenced vesting on September 1,
1996 and (c) will be an Incentive Stock Option to the extent possible given the
$100,000 per annum vesting restriction of applicable tax laws relating to
Incentive Stock Options. Any further options granted to Employee will be at the
sole discretion of the Board.
6. COLLATERAL AGREEMENTS. Employee and the Company acknowledge
that the Indemnification Agreement and the Proprietary Rights Agreement
previously entered into between Employee and the Company will continue in full
force and effect in accordance with their terms and will not terminate as a
result of expiration or termination of this Agreement.
7. GENERAL PROVISIONS.
7.1 ARBITRATION. Employee and the Company shall submit to
binding arbitration in any controversy or claim arising out of, or relating to,
this Agreement or any breach hereof, provided, however, that the Company retains
its right to, and shall not be prohibited, limited or in any other way
restricted from, seeking or obtaining equitable relief from a court having
jurisdiction
-4-
<PAGE> 5
Micronics/Munshani
Employment Agreement
over the parties. Such arbitration shall be conducted in accordance with the
Rules of the American Arbitration Association in effect at that time, and
judgment upon the determination or award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Cost of the arbitration
(including, without limitation, reasonable attorney's fees and disbursements)
will be borne by the Company.
7.2 ENFORCEABILITY. If any provision of this Agreement shall
be found by any arbitrator or court of competent jurisdiction to be invalid or
unenforceable, the parties hereby waive such provision to the extent that it is
found to be invalid or unenforceable and to the extent that to do so would not
deprive one of the parties of the substantial benefit of its bargain. Such
provision shall, to the extent allowable by law and the preceding sentence, be
modified by such arbitrator or court so that it becomes enforceable and, as
modified, shall be enforced as any other provision hereof, all the other
provisions continuing in full force and effect. Remedies provided for in this
Agreement are cumulative and are in addition to any other right or remedy
granted to any party by contract, at law, in equity or otherwise.
7.3 NO WAIVER. The failure by either party at any time to
require performance or compliance by the other of any of its obligations or
agreements shall in no way affect the right to require such performance or
compliance at any time thereafter. The waiver by either party of a breach of any
provision hereof shall not be taken or held to be a waiver of any preceding or
succeeding breach of such provision or as a waiver of the provision itself. No
waiver of any kind shall be effective or binding, unless it is in writing and is
signed by the party against whom such waiver is sought to be enforced.
7.4 ASSIGNMENT. This Agreement and all rights hereunder are
personal to Employee and may not be transferred or assigned by Employee at any
time. The Company may assign its rights, together with its obligations
hereunder, to any parent, subsidiary, affiliate or successor, in connection with
any sale, transfer or other disposition of all or substantially all of its
business and assets, provided, however, that any such assignee assumes the
Company's obligations hereunder. This Agreement shall be binding upon, and inure
to the benefit of, the permitted successors and personal representatives of the
respective parties hereto.
7.5 WITHHOLDING. All sums payable to Employee hereunder
shall be reduced by federal, state, local and other withholding and similar
taxes or payments required by applicable law.
7.6 ENTIRE AGREEMENT; AMENDMENT. Except as specifically
provided herein, this Agreement constitutes the entire and only agreement
between the parties relating to employment of Employee by the Company, and
supersedes and cancels any and all previous contracts, arrangements or
understandings with respect thereto. This Agreement may be amended, modified,
superseded, canceled, renewed or extended only by an agreement in writing
executed by both parties hereto.
7.7 NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed to
have been duly given when delivered personally or mailed by certified mail,
return receipt requested, postage prepaid to the address of the
-5-
<PAGE> 6
Micronics/Munshani
Employment Agreement
relevant party as set forth above or as may be changed by notice given hereafter
in accordance with the provisions of this Section 7.7.
7.8 GENERAL INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall in no way affect the meaning
or interpretation of this Agreement. In this Agreement, the singular includes
the plural, the plural includes the singular, and the masculine gender includes
both male and female referents. This Agreement maybe executed in two or more
counterparts, each of which shall be deemed to be an original but all of which,
taken together, constitute one and the same agreement. This Agreement and the
rights and obligations of the parties hereto shall be construed in accordance
with the laws of the State of California, without giving effect to the
principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first written above.
EMPLOYEE: MICRONICS COMPUTERS, INC.
/s/ Shanker Munshani By: /s/ Wm. E. Shelander
- ------------------------------- ---------------------------------
Shanker Munshani Wm. E. Shelander
Authorized Signatory
-6-
<PAGE> 1
EXHIBIT 11.01
MICRONICS COMPUTERS, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY
Net income (loss) ..................... $ (2,664) $ (916) $ (2,498) $ 13
======== ======== ======== ========
Average shares outstanding ............ 13,979 13,765 13,947 13,752
Options ............................... -- -- -- 7
-------- -------- -------- --------
Total common stock and common
stock equivalents ................. 13,979 13,765 13,947 13,759
======== ======== ======== ========
Net income (loss) per common share .... $ (.19) $ (.07) $ (.18) $ 0
======== ======== ======== ========
FULLY DILUTED
Net income (loss) ..................... $ (2,664) $ (916) $ (2,498) $ 13
======== ======== ======== ========
Average shares outstanding ............ 13,979 13,765 13,947 13,752
Options ............................... -- -- -- 7
-------- -------- -------- --------
Total common stock and common
stock equivalents ................. 13,979 13,765 13,947 13,759
======== ======== ======== ========
Net income (loss) per common share .... $ (.19) $ (.07) $ (.18) $ 0
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 23,400
<SECURITIES> 2,502
<RECEIVABLES> 15,842
<ALLOWANCES> 0
<INVENTORY> 7,835
<CURRENT-ASSETS> 51,547
<PP&E> 5,158
<DEPRECIATION> 0
<TOTAL-ASSETS> 56,744
<CURRENT-LIABILITIES> 15,236
<BONDS> 0
0
0
<COMMON> 140
<OTHER-SE> 41,368
<TOTAL-LIABILITY-AND-EQUITY> 56,744
<SALES> 60,470
<TOTAL-REVENUES> 60,470
<CGS> 53,657
<TOTAL-COSTS> 53,657
<OTHER-EXPENSES> 9,311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,498)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,498)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
