Confidential Treatment Requested
Omitted Portions Marked with [ * ] and Filed
Separately with the SEC
Exhibit 10.31
Altera Corporation
101 Innovation Drive
San Jose, CA 95134
Phone: 408-544-7000
May 22, 2002
Attn: Jan Salsgiver,
President
Arrow Electronics Inc.
25 Hub Drive
Melville, New York 11747-3509
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Re:
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Fee-For-Service
Arrangement With Respect to Certain Customers Pursuant to this
Letter Agreement and the Distribution Agreements (listed on Exhibit
B hereto) By and Between Altera Corporation (“Altera
Corp.”), and Altera International Limited, a direct and
indirect subsidiary of Altera (“Altera Int.”), on the
one hand, and Arrow Electronics Inc. (“Arrow”), and its
direct and indirect subsidiaries (“Arrow Subs”), on the
other hand (collectively, the “Distribution
Agreements”).
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Dear Ms. Salsgiver:
As you know, the customers listed on
Exhibit A attached hereto and incorporated herein by this
reference (individually and collectively, “Customers”)
are major customers of Altera Corp. and Arrow. In order to
establish and maintain certain minimum levels of inventory to meet
Customers’ projected needs, and to dedicate certain resources
to satisfying Customers’ fulfillment needs, Altera Corp. has
agreed to provide certain credit advances and make certain payments
to Arrow and the Arrow Subs in a “fee-for-service”
arrangement. Altera Corp. shall also sometimes be referred to
herein as “Altera.”
The terms or conditions of the
Distribution Agreements will be applicable to this letter agreement
to the extent set forth in Section 12 below.
This letter agreement describes and
defines a new business model for Arrow and Altera. It is agreed and
understood that the purposes of this new business model, and
accordingly this letter agreement, are to have Altera gain
efficiencies from its standard pricing model and for Arrow to make
a fair and equitable profit for the services it will render. The
intent of the parties is for Altera to accept and fund the costs of
capital for Arrow’s Customer specific inventory supply as
specified herein, however, it is understood that Altera will not be
responsible for loss or damage to any products that are not within
its dominion and control. The terms of this letter agreement as to
each Customer will be reviewed every six (6) months (the initial
review will take place six (6) months after the applicable
“Implementation Date” for each Customer) and will be
adjusted or modified in accordance with those purposes, as
necessary and mutually agreed.
Confidential Treatment Requested
Omitted Portions Marked with [ * ] and Filed
Separately with the SEC
The discussion above outlines the
background for these advances and other payments. The parties agree
to the following specific terms and conditions upon which any such
advances and other payments will be made:
The parties agree that this letter
agreement is entered into by Altera; provided, however, that to the
extent that this letter agreement pertains to sales of goods or
services to Arrow, the Arrow Subs or Customers outside of the U.S.
and Canada, this letter agreement shall be performed solely by
Altera Int. and all references to Altera shall be deemed made to
Altera Int. for such purposes; provided further, that Altera Corp.
shall be responsible for all past due payment obligations hereunder
of Altera Int.
Service Fee, Margin and
Advances
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1)
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Effective as of
the “Implementation Date” set forth on Exhibit A for
each respective Customer, Arrow and the Arrow Subs will perform
worldwide fulfillment of Altera products to Customers and their
designated contract manufacturers (acting on behalf of Customers)
(“CMs”) for the respective “Monthly Service
Fees” set forth on Exhibit A for each Customer, due and
payable to Arrow by the 15 th day of each following calendar
month, via credit memo, and the respective Margin Percentage of net
resales (i.e., excluding all insurance and transportation costs,
taxes, duties, special marking charges, programming charges and all
other value-added services described in Section 9 below) of Altera
products made to Customers and fulfilled by Arrow and the Arrow
Subs. For Altera internal accounting purposes, the foregoing
monthly service fee shall be allocated by Altera between Altera and
Altera Int. based on the percentage of sales made through such
entity for such month.
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2)
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Altera agrees
to provide non-interest bearing cash advances (“Inventory
Advances”) to Arrow and the Arrow Subs for the
Customer-specific inventories of Altera products purchased from
Altera and Altera Int., as calculated below. Arrow and the Arrow
Subs will segregate their inventory of Altera and Altera Int.
products maintained for resale to Customers by establishing
Customer specific NEDA numbers. Target inventory levels shall
initially be as set forth on Exhibit A for each Customer
(“Target Inventory Levels”), and subject to adjustment
by mutual agreement. Arrow and the Arrow Subs are responsible for
using reasonable efforts to manage to the Target Inventory Levels.
Arrow will provide to Altera, no less than once a week, reports
describing all Customer specific inventory, Customer backlog to
Arrow by part number and products on order by Customer. Altera may,
based on its review of such reports, determine that inventory
levels or products on order should be adjusted, in which case, it
will discuss same with Arrow and the parties will mutually agree to
an appropriate adjustment. In the event that Altera does not object
to any particular weekly report, then the contents of such report
are deemed accepted by Altera once the following weekly report is
issued such that Arrow and the Arrow Subs will be deemed to have
satisfied their obligations to use reasonable efforts to manage the
Target Inventory levels insofar as the inventory and product orders
contained in such report are concerned.
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3)
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Altera agrees
to provide non-interest bearing cash advances (“DSO
Advances”) to Arrow and the Arrow Subs equal to the actual
distributor cost of days sales outstanding of Altera and Altera
Int. products to Customers to a maximum of the respective period
for each Customer as set forth on Exhibit A (“DSO”), as
calculated below. Payment terms for the inventory purchased by
Arrow from Altera are [ * ].
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Confidential Treatment Requested
Omitted Portions Marked with [ * ] and Filed
Separately with the SEC
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4)
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Inventory
Advances and DSO Advances (collectively, the
“Advances”), or repayments of such Advances to Altera,
must be made via wire transfer within [ * ] from the monthly
reconciliation described in Section 7 below.
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Calculation of Advances and
Payments
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5)
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Inventory
Advances to Arrow and the Arrow Subs will equal the purchase price
paid for Customer-specific inventories, based on the agreed to
Customer distributor costs of inventory [ * ]. Arrow will follow
and abide by the inventory management processes that are described
above.
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6)
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DSO Advances
will exclude days sales outstanding of Altera products to Customers
exceeding the timeframes described in Section 3 above. The
calculation of DSO Advances will be based on backward looking sales
out units at Customers’ distributor cost as of the end of the
last day of each business week during the relevant period. Final
calculation will be based on a simple averaging of the weeks within
the relevant period.
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7)
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After any
initial Advances made to Arrow for the determined amounts of
Customer-specific inventory and DSO in order to transition to this
arrangement, payment of additional Advances or repayments of
Advances to increase or decrease the outstanding aggregate balance
of Advances, will be determined by a monthly reconciliation which
will be calculated based on the difference between the total
Customer-specific inventory levels and DSOs and the outstanding
balance of Advances, based on the prior monthly reconciliation, as
each is determined as of the last day of each Altera fiscal
month.
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8)
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In the event
that Customer-specific inventory levels and DSOs exceed the then
outstanding balance of Advances by more than [ * ], Altera will
increase the outstanding bal
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