EXHIBIT 10.46
Attachment 3 to Article 2 - Manufacturing
of the Alliance Agreement between Network
Computing Devices, Inc. and IBM Corporation
This Attachment is entered into by and between Network Computing Devices,
Inc. ("NCD") and International Business Machines Corporation ("IBM").
RECITALS
1. NCD and IBM have entered into an Alliance Agreement effective June 27,
1996 (the "Agreement") in the area of a network application terminal ("thin
client") product.
2. NCD and IBM now desire to supplement and modify Articles 1 and 2 of
the Agreement. This Attachment modifies Article 2, and a related Attachment
(Attachment 2 to Article 1 - Development) modifies Article 1 of the
Agreement. The provisions of this Attachment are entered into by the parties
in consideration of the provisions of both new Attachments, and this
Attachment shall become effective only when both such Attachments are
executed by the parties. Except as explicitly described herein, this
Attachment, together with the related Attachment described above, supersede
and replace the Letter of Intent between IBM and NCD, dated June 5, 1997.
I. ADJUSTMENT TO PRICE FORMULA FOR POWERPC 603 "PHANTOM" PRODUCT
NCD shall manufacture the Products as described in Article 1 - Development
and its Attachments (including Attachment 2 to Article 1) in accordance with
all the terms and conditions of Article 2 - Manufacturing. Such Products
shall be considered "Products" for all purposes under the terms of the
Alliance Agreement, provided, however that in determining the B/M cost of
the PowerPC 603 "Phantom" Product described in Attachment 2 to Article 1,
the following costs shall be added to the B/M for such Product:
A. Incremental Packaging and Freight Costs
NCD's actual Incremental Costs of the following items shall be added to the
B/M costs for the PowerPC 603 "Phantom" Product:
Product Packaging
Freight Costs
For the purposes of this Attachment, "Incremental Costs" shall mean the
actual difference in charges paid by NCD for the above listed items between
the existing 403-based IBM Network Station Products and the PowerPC 603
"Phantom" Product due to unique characteristics of the PowerPC 603 "Phantom"
Product (i.e., size, weight).
B. Manufacturing/Engineering Support Costs
A Manufacturing/Engineering Support Cost of $1.00 per unit shall be added to
the B/M cost for the initial release of the PowerPC 603-based Product, known
as the PowerPC 603 "Phantom" Product, and for any follow-on or derivative
PowerPC 603-based Products (collectively "PowerPC 603 Family Products"),
but such charge shall apply only until (1) IBM has purchased 100,000 units
of such PowerPC 603 Family Products, or (2) December 31, 1998, whichever
occurs earlier. In the event IBM fails to purchase at least 100,000 units of
PowerPC 603 Family Products from NCD by December 31, 1998, IBM will be
required to pay NCD a lump sum equal to $1.00 times the difference between
100,000 and the actual number of PowerPC 603 Family Products purchased by
IBM, so that the total amount of Manufacturing/Engineering Costs paid to NCD
equals $100,000. In the event a lump sum is due, NCD may invoice IBM for such
lump sum no earlier than January 1, 1999 and no later than March 31, 1999.
IBM shall remit payment on NCD's invoice no later than 60 days after
receiving such invoice.
C. Additional Product Warranty Costs
An additional charge of $1.50 shall be added to the B/M cost for the PowerPC
603 "Phantom" Product to cover the potential increase in NCD's cost of
providing the warranty service for such Product. This additional warranty
charge shall not be subject to the Quarterly Price Reviews and Adjustments
described in section 4.2 of the Manufacturing Article, but such charge will
cease to apply in the event IBM notifies NCD in writing that it is waiving
its right to obtain Product Warranty service (as described in section 12.2 of
the Manufacturing Article) for the PowerPC 603 "Phantom" Product.
Following execution of this Attachment, the parties shall work in good faith
to update the PSPL to reflect the price and related details of the Products
covered by this Attachment.
II. TOOLING FOR POWERPC 603 "PHANTOM" PRODUCT
The provisions of section 8 "Tooling" of the Manufacturing Article shall
apply to the tooling for the Products covered by this Attachment. The parties
agree, however, that soft tooling and the initial production-level tooling
(or "hard tooling") for the PowerPC 603 "Phantom" Product shall be
considered Tooling required by IBM due solely to an IBM mechanical design
change, and IBM shall therefore pay for such Tooling" If requested by IBM,
NCD shall negotiate in good faith with IBM for the amortization of such
Tooling costs over the projected volumes of Products for which such Tooling
would be used.
III. RENEWAL OF MANUFACTURING ARTICLE
Pursuant to section 7.1 of the Base Agreement, the parties hereby agree that
the Agreement shall be, and hereby is, renewed through December 31, 2000.
IV. AMENDMENT TO IBM VOLUME PERCENTAGE REQUIREMENTS FOR 1999 AND 2000
The parties hereby agree to amend section 14.1 of Article 2 of the Agreement
by making the following modifications:
A. Second unnumbered paragraph, first line, remove "or 100,000
units."
B. Second unnumbered paragraph, third line, remove "or 50,000
units.
V. AMENDMENT TO SECTION 12.2 (PRODUCT WARRANTY) OF ARTICLE 2 AND ADDITIONAL
IMPLEMENTATION DETAIL
Pursuant to Section 12.2 of Article 2, the parties have agreed to
additional implementation details for handling warranty returns and
service. These details are contained in Exhibit A to this Attachment, and
are hereby incorporated into this Attachment by reference. The parties'
Manufacturing Article Coordinators may modify, or waive compliance with,
such details by mutual written agreement.
VI. IBM DESIGNATED AS IMPORTER OF RECORD FOR SHIPMENTS OUTSIDE UNITED STATES
The parties agree that, effective January 1, 1998, IBM shall be
designated as the importer of record for shipment of IBM-ordered
Products to IBM-designated locations outside of the United States.
Accordingly, IBM shall be responsible for paying the applicable import
duties to the governmental authority of the country into which such
Products are imported, and for providing such governmental authority
with the required documentation and certifications necessary for
importation and customs clearance. The "F.O.B. IBM Location" provision
of Article 2 shall remain intact, and NCD shall continue to be
responsible for shipment and delivery of Products to the IBM-designated
delivery point. NCD shall retain the title and the risk of loss for such
Products until they are delivered to the IBM-designated delivery point,
except that if the law of any country into which IBM requests
importation of the Products requires that the importer of record hold
legal title to the Products, then title shall pass to IBM at the last
moment necessary for IBM to comply with such law and become importer of
record. In all cases, risk of loss and responsibility for shipment shall
remain with NCD until the Products are delivered to the IBM-designated
location.
NCD shall diligently execute all documents necessary for IBM to become
importer of record for shipments to non-U.S. locations on or after
January 1, 1998, and shall
cooperate fully with IBM throughout the term of the Alliance Agreement
in providing all information and certifications necessary for customs
clearance and importation, including but not limited to certifications
and information as to the country of origin of such Products. NCD shall
remain responsible for complying with all labelling specifications
requested by IBM to ensure compliance with import and export laws.
In addition, effective January 1, 1998, the last paragraph of section
4.1 of Article 2 - Manufacturing shall be deleted in its entirety and
replaced with the following:
NCD agrees that it will reimburse IBM for the excess portion of any
duty paid by IBM resulting from the shipment of IBM-ordered Products
to any IBM-location outside of the United States that is greater than
the amount of duty that would have been paid for shipment of the
Products form the United States to the same IBM-designated location on
the same date. Upon being notified in writing by IBM of such duty
excess, NCD shall make such reimbursement by applying a credit
reflecting the excess duty to the invoices submitted to IBM for such
Products. NCD shall show this credit, and identify it as such, as a
separate line item on the invoice, and shall indicate the total amount
of the credit applicable to such invoice as well as the per unit
amount of the credit and the number of units to which it applies. The
duty paid by IBM shall continue to be considered part of the piece
price of Products for purposes of evaluating price competitiveness
under sections 13 and 14 of Article 2, except that any excess duty
credit applied by NCD in accordance with this paragraph shall be
considered to reduce the price by the amount of such credit for the
purpose of sections 13 and 14 or Article 2.
The parties agree that the intent of this change in the importer of
record designation is to have IBM take administrative responsibility
for import clearance in IBM-designated non-U.S. locations It should
not be construed as altering the general responsibility of the parties
with respect to shipment and risk of loss of the Products or altering
the balance of financial obligations except for such expenses incidental
to IBM assuming the administrative responsibility of importer of record.
VII. PRODUCT FULFILLMENT/REPLENISHMENT PLAN DEVELOPMENT
IBM and NCD both agree that the implementation of a competitive
fulfillment/replenishment process is essential to meeting the demands
and rigors of the netowork computing marketplace. NCD agrees to commence
face-to-face discussions and telephonic meetings with IBM within 15 days
after execution of Attachment 3 to Article 2 to dicsuss the parameters
of implementing such a program. At a minimum, IBM and NCD will discuss
the following:
IBM's requirements for the fulfillment/replenishment process; IBM
volume requirements; IBM's desired points of distribution; expenses
and costs and which
party bears such costs associated with program implementation; and a
proposed timetable for implementation.
IBM and NCD commit to working in good faith to establish a plan for
executing a competitive fulfillment/replenishment process pursuant to a
timetable mutually agreed to by both parties.
VIII. CHANGE IN IBM'S MANUFACTURING ARTICLE COORDINATOR
IBM hereby notifies NCD that IBM's Article 2 Coordinator is
changed to the following:
Glenn Gallagher
IBM Corporation, Dept. U7JA
P.O Box 12195
3039 Cornwallis
Research Triangle Park, NC 27709-2195
PHONE: (919) 486-0835
FAX: (919) 546-7606
IX. BILL OF MATERIALS INFORMATION FOR POWERPC 603 "PHANTOM" PRODUCT
NCD agrees to provide to IBM's Manufacturing Article Coordinator no
later than Monday, November 10, 1997 a fully-costed Bill of
Materials for the PowerPC 603 "Phantom" Product assuming an
ordering process in accordance with the Manufacturing Article
without any special expedite charges. Such Bill of Materials shall
be separately itemized for each component, service and other charge
that comprises the Bill of Materials, and shall represent the best
comptetivie costs that NCD has been able to obtain for such items.
The Bill of Materials shall be accompanied by reasonable
justification/explanation for each of the charges. Where the
contract requires the Bill of Materials to include cost
differentials, or "deltas," the itemization of such delta costs
shall be accompanied by the base costs from which such delta costs
are the result.
IN WITNESS WHEREOF, each party has reviewed this Article and each party has
executed this Article by signature of its authorized representative.
NETWORK COMPUTING DEVICES, INC. INTERNATIONAL BUSINESS
MACHINES CORPORATION
Signature /s/ Lorraine Hariton Signature /s/ Stephen R. Villanueva
---------------- ---------------------
Printed Name Lorraine Hariton Printed Name Stephen R. Villanueva
Printed Title Sr. V.P. of Printed Title Director, OEM
Marketing & Procurement
Business Development
Date 11/4/97 Date 11/4/97
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EXHIBIT A
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REPAIR PROCESS FOR FACTORY FAILED PARTS:
When a new 8361 unit fails in test at either Raleigh, Greenock, or
other IBM manufacturing location; the manufacturing location will do
the following:
Manufacturing will accumulate the failed new units, fill out the
IBM paperwork and send with the parts to the reclamation
department who will fill out an RPR form and initiate a P.O. and
route these to the buyer. The buyer, to get authorization to
return the units, will send an e-mail(for either Greenock or
Raleigh) to: srs@ncd.com
with a copy to : pronto@ncd.com
msm@ncd.com
This e-mail will include: the IBM person to contact, where to
ship the units back to, the serial numbers for all units covered
by the RMA, and a problem description for each unit (if available).
NCD will respond with a Return Material Authorization(RMA) number.
The response will be no later than the end of the next work day.
The buyer will provide this RMA number to the Reclamation
department and will process a Purchase Order to get these parts
returned and repaired. The buyer will also process a debit memo
for the quantity of parts returned. This will cause the purchase
price for the returned units to be subtracted from the next new
build invoice(s) unless the failed parts are repaired and returned
before any pending new build invoices are paid.
The Raleigh Reclamation Department will ship the failed parts
along with the RPR form to NCD at the following address:
Attn: RMA number xxxxxxx fill in the RMA number here
NCD INC.
301A Ravendale Ave.
Mountain View, California 94043
The Greenock Reclamation Department will ship the failed parts
along with the RPR form to NCD at the following address:
Attn: RMA number xxxxxxx fill in the RMA number here
Eurographics Industries Limited
Unit 6, 24 Premier Way
Abbey Park Industrial Estate
EXHIBIT A
TO ATTACHMENT 3 TO ARTICLE 2 - MANUFACTURING
Romsey, Hampshire, England S051 9AQ
Parts will be returned to NCD once per month or whenever a quantity of 20 to
50 is accumulated, or once per week if the failure rate exceeds 10 units/week.
Parts will be returned in the original shipping material with an acceptable
overpack. Shipping via ground transportation is acceptable.
Shipping cost to NCD will be paid by IBM.
NCD will:
- - Repair or replace these systems within two weeks(ten working days not
counting shipping time) of their receipt from IBM and ship them back to the
IBM manufacturing location address indicated on the RPR form.
Note: Systems that failed in the field cannot be sent to any IBM
manufacturing site after repair; these units must be sent to the IBM field
parts location.
- - Provide failure/repair data to designated IBM person(s) within two weeks of
completing lot repair. Failure data will be provided via e-mail in a mutually
agreed format.
- - Retest the units using the NCD Repair Process fo IBM M/T 8361 and 8362 -
see attachment.
- - Perform all of the same quality assurance processes used on new units.
- - During repair, install any required E.C.'s that have occurred since the
unit was first shipped. The individual E.C. will specify if it needs to be
applied on factory/field returned product.
- - Mark the repaired unit with a code that indicates it was repaired and the
date it was repaired. The mark to be made with indelible ink. Mark to be
located on the logic card inside the covers.
- - Any unit that comes back for repair within six months of having been
previously repaired must be scrapped and replaced.
EXHIBIT A
TO ATTACHMENT 3 TO ARTICLE 2 - MANUFACTURING
- - The S/N of the unit does not need to change.
- - Shipping these repaired units to IBM is at NCD cost. Shipping via ground
transportation is acceptable.
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REPAIR PROCESS FOR FIELD RETURNED UNITS
IBM Mechanicsburg will return field failed units to the following address:
Attn: RMA number xxxxxxx fill in the RMA number here
NCD INC.
301A Ravendale Ave.
Mountain View, California 94043
IBM Europe will return field failed units to the following address:
Attn: RMA number xxxxxxx fill in the RMA number here
Eurographics Industries Limited
Unit 6, 24 Premier Way
Abbey Park Industrial Estate
Romsey, Hampshire, England S051 9AQ
The failed units will be in their original shipping container with an
acceptable overpack.
When the field parts depot(Mechanicsburg or Someplace in Europe) has
accumulated a quantity of failed parts, the Parts Analyzer (currently Dave
Lebo in Mechanicsburg 717-795-4169, and Tony Rennie in Greenock) will
generate a list of the serial numbers to be repaired. The analyzer will
contact NCD via email(see e-mail address below) to determine which parts are
covered by NCD's warranty and which are to be repaired at IBM's cost.
The analyzer will list the serial numbers and a problem description for each
unit(if available) in an RMA form along with the name of the IBM person to
contact, and where to ship the units back to; and then contact the IBM buyer
to arrange for repair. The buyer will process a P.O. based on the data in the
RMA. The buyer will send an e-mail to NCD to get authorization to return the
parts. The e-mail (for either
EXHIBIT A
TO ATTACHMENT 3 TO ARTICLE 2 - MANUFACTURING
Europe or Raleigh) will be sent to: srs@ncd.com
with a copy to : pronto@ncd.com
and msm@ncd.com
This e-mail will include: the IBM person to contact, where to ship the units
back to, the serial numbers for all units covered by the RMA, and a problem
description for each unit(if available). NCD will respond with a Return
Material Authorization(RMA) number no later than the end of the next work
day. The buyer will provide this RMA number to the analyzer.
Mechanicsburg/Europe will ship failed parts along with the RMA form to NCD at
the address(es) above.
Shipping charge to NCD will be paid by IBM
NCD will:
- - Remove any extra memory SIMMs or Video memory left in the unit, record P/Ns
and serial number on which this occurred. Record the serial number and
missing parts of any system returned missing parts. Return the extra parts to
IBM at IBM's request.
- - Scrap and replace any unit that comes back for repair within six months of
having been previously repaired.
- - Clean the returned units.
- - Covers must be in good working order and have same appearance as a new
cover; or the cover must be replaced.
- - Repair the failed units. Any unit that is not repairable and is still under
warranty must be replaced with a new unit; if out of warranty, it will be
returned to IBM to be scrapped and IBM will be charged a diagnostic fee.
- - Repair or replace these systems within two weeks(ten working days not
counting shipping time) of their receipt from IBM and ship them back to the
IBM field location address indicated on the RPR form. If quantity to repair
exceeds 100 units, the repair time must be negotiated at the time the P.O. is
placed.
- - During repair, install any required E.C.'s that have occurred since the
unit was first shipped. The individual E.C. will specify if it needs to be
applied on factory/field returned
EXHIBIT A
TO ATTACHMENT 3 TO ARTICLE 2 - MANUFACTURING
product.
- - Retest the units using an approved process. NCD Inc will submit their
repair process for review. When approved that document will become part of
this process.
- - Perform all of the same quality assurance processes used on new
units.
- - The S/N of the unit does not change.
- - Mark the repaired unit with a code that indicates it was repaired
and the date it was repaired. The mark to be made with indelible ink.
Mark to be located on the logic card inside the cover.
- - Place repaired unit in a new shipping container marked per IBM
specifications.
- - Send repaired field returned cards at NCD Inc cost back to the Field
location indicated on the RMA form - not to any manufacturing locations.
Shipping via ground transportation is acceptable.
- - Provide failure/repair data to IBM within two weeks of repair.
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NCD Repair Process for IBM M/T 8361 and 8362
NCD Receiving coordinator will;
1. Verify serial number and part number of unit against RMA # issued to
customer. If the serial numbers do not match, the unit is put on
hold until the issue can be resolved (customer service will
contact the customer)
2. Receive the unit into the system.
3. Print a traveler (paperwork that accompanies the unit through the
EXHIBIT A
TO ATTACHMENT 3 TO ARTICLE 2 - MANUFACTURING
process).
4. Checks s/n of unit for "second time back status"
Any units coming back within 6 months of last repair date is
sent to MRB. MRB must get approval of IBM quality engineering to
reuse any second time back board. Without this approval, board
cannot be sent back to IBM.
5. Units are sent to technicians for repair.
Repair technicians will;
6. Verify data/configuration of the unit (boot prom version, Ethernet
address, simms, etc.) and record information on traveler.
7. Any information regarding additional or missing parts will be
forwarded to customer service. Customer service will contact
customer for resolution of these issues.
Invoicing required as a result of these issues will be handled
by the Customer Service representative.
8. Write any upgrades required on the traveler.
9. Attempt to duplicate problem with manual "bench test"
If problem is duplicated or a problem is found the unit is
repaired and proceeds to the next process step.
If there is no problem found, the unit is put through a
two day burn-in test. If no problem is found during this burn-in
the unit will continue through the process and if no other
problem is found it will be classified as "NO Trouble Found". If
the unit fails during this burn-in, it will be worked on until
the problem is identified and repaired or the board will be
replaced.
10. Required E.C. upgrades are installed on units.
11. Unit is put into overnight "burn-in test" (which is the same as the
new build burn-in.)
The overnight burn-in test; cycles power, cycles temp
and does a continuous composite cycle test (~5 minutes)
This looping test does a complete functional test; a minimum
amount of passes are required in order to pass test, data is
logged onto database automatically.
12. After successful completion of the overnight burn-in the manual
EXHIBIT A
TO ATTACHMNT 3 TO ARTICLE 2 - MANUFACTURING
bench test is repeated.
If the unit cannot pass the overnight burn-in and the manual
bench test, the pcb or unit will be replaced.
13. Original configuration and factory defaults are loaded.
Any extra parts (simms, etc.) are removed and all parts required
to meet original configuration are installed. This unit will be
exactly as it was originally shipped with the addition of any
required E.C.'s
14. Complete inspection of rework and configuration of unit.
15. Mark date unit was repaired on the PCB.
16. All repair information is entered into the database.
17. Unit is sent to base packaging station.
Base Packaging will;
18. Do a cosmetic inspection of the unit - replacing any parts which do
not meet the cosmetic criteria.
19. Fill out the Repair Notification Form
Any serial numbers that were changed, (pcb or unit) will be noted
on this form.
20. Insure all labels are correct and package the unit.
21. Submit lot to Quality for inspection.
Shipping;
22. Verify the quantity of parts ready for shipment against the
quantity received for that RMA.
Initially, no partial shipments will be made on Field Returned
unit RMAs; any unit that was unrepairable will be replaced at a
cost to IBM that is different than units that are repaired. As
the product matures, IBM can elect to not have the unit replaced
and just pay a screening cost that is different than the cost of
units that are repaired.
23. Ship back any additional parts per customers requirements.