INTEROFFICE MEMO



TO: John De Santis cc. Dave Stubben, Jeff Heimbuck,

and John Cavalier



FROM: Don Teiser



DATE: 6/14/83



SUBJECT: Nintendo



As we discussed with Dave Stubben yesterday, I am to remove

myself from any further involvement with the Nintendo project

..... and Dave has indicated that you are the one to take it

over.



I have provided you with a copy of my file containing my previous

memos on the subject (with corrections); the approach letter from

Nintendo; all of the schematics and mechanical drawings of the

Nintendo machine which we have received to date; and Ed Levy's

mechanical drawings which attempt to fit the Nintendo machine

into the 2100 plastic.



We spent the latter part of the afternoon yesterday discussing

the history of this deal and what needs to be done next by both

sides. Let me review those points here and expand upon them for

your reference.



Mr. Henricks received a letter from Mr. Arakawa and Mr. Lincoln

of Nintendo America on April 4, 1983. In that letter, Nintendo

provided us with some preliminary specifications on their new

home video game machine. A couple of days later they came to meet

with Mr. Kassar to explore whether Atari had any interest in this

product. In addition to Messers Arakawa, Lincoln, Henricks, and

Kassar; Messers Groth, Malloy, Moone, Bruehl, Ruckert, and myself

were invited to attend. Mr. Malloy and I framed some of the

initial questions which needed to be answered about the

capabilities of the machine; and Mr. Lincoln promised to get the

answers to me within a few days. Those answers were sufficiently

intriquing to Mr. Groth that Alan Henricks, Dave Remson, and I

were asked to travel to Kyoto immediately to see their TTL

emulator in action and get more details about the final product.



On the 11th of April, 1983, we met with Nintendo at their

headquarters in Kyoto. By happenstance (fortunate or

unfortunate), a large contingent of Atari executives were in the

Far East for other reasons .... and they all decided to come to

Kyoto to have a look, too. In attendance from Atari were Messers.

Bruehl, Moone, Malloy, Lynch, Hennick, Mitoh, Henricks, Remson,

and myself. Attending on Nintendo's behalf were Messers. Yamauchi

(President), Takeda (Manager of R&D, Coin-Op), Arakawa (Pres.

Nintendo America), Lincoln (internal attorney for Nintendo

America), Uemura (Manager of R&D, Consumer Products), Todori

(Export Manager), and two of their electrical engineers.



We were shown working (but not complete) versions of Donkey Kong

Junior and Popeye running with only minor display glitches on

their TTL emulator. A VHS video tape (without sound) of that demo

is attached to this memo. Please keep in mind that the actual TV

image is significantly better than could be captured on tape. In

fact, there is a noticable difference when viewing the composite

video output on a monitor as opposed to the RF output on a

standard TV receiver.



At that time, Nintendo had only just received their 1st pass

silicon (with some bugs) and were not able to show us a fully

assembled and working prototype. My memo of 4/16/83 (with

corrections) describes what we saw and were told in that meeting.



On 4/15/83, Messers Kassar, Groth, Moone, Bruehl, Paul, Henricks,

Remson, and myself met in Mr. Groth's office to view the videotape

and discuss what we had learned from the meeting on the 11th and

what we knew to-date on the MARIA chip being developed by General

Computer. As both systems were seen as being in the same price

range with graphics capabilities superior to the 2600 and

comparable (and in some features, superior) to the 5200, it was

felt that we needed to see what could be done with both machines

for an intermediate priced game machine .... the 3600.





I was asked to become as completely informed about the MARIA chip

as possible so that a reasoned choice could be made between the

two machines. To that end, I have spoken with the folks at General

Computer several times by telephone and have made two trips to

their offices in Cambridge, Mass. It appears to be a superior

machine, but the MARIA chip is not yet finished. First silicon is

not expected until mid-July (if there are no further schedule

delays). Also, since this chip is a VTI device there is some

question as to the manufacturability/testability/cost of the chip.

In other words, it will not be until mid-July (mid-August if the

first silicon is faulty) that we will be able to make a fully

informed choice between the Nintendo and the MARIA machines.

Therefore, it was decided by Executive Management that in any

negotiations with Nintendo we would need to string out the

signing until at least mid-July.



We were committed to respond quickly to Nintendo, however, as to

whether we were interested or not. So, Alan Henricks did contact

Nintendo with the word that we were interesting in continuing the

discussions; and the next negotiating meeting was arranged for May

17th in Kyoto. Skip Paul and Alan Henricks were to represent

Atari. Two or three days before that meeting, Nintendo informed

Mr. Henricks that they would be having their senior engineering

managers present in the negotiations, and Nintendo requested my

attendance as well.



That negotiating session began with a statement from Mr. Yamauchi

as to the terms and conditions which he demanded, namely:



1. that Atari would purchase the assembled and tested

main pc board for the FCS from Nintendo, for sale

outside of Japan. Nintendo would sell the FCS on its

own in Japan.



2. after some minimum purchase of assembled and tested pc

boards, we would be able to buy the 2 custom chips

from Nintendo without having to have Nintendo assemble

them into the final unit.



3. that Nintendo would only disclose the electrical specs

for the PPU and CPU, the circuit diagram of the FCS

system, the test programs, and the "cassette" specs

(meaning the ROM cartridge and cartridge edge

connector specs).



4. that there would be no disclosure to Atari of the

programming specs for the PPU and the CPU.



5. that Nintendo would program titles of our choice for

the FCS system and would sell us the assembled and

tested, unlabeled ROM carts at 1,500 Yen each FOB

Japan for retail sale by Atari. The minimum quantity

required by Nintendo per title would be 100,000 units

and at that level there would be no fee for

non-recurring engineering/programming expenses.



6. that Atari would hereby obtain a "right of 1st

refusal" on future Nintendo coin-op titles for use

worldwide (outside of Japan) only for the Nintendo FCS

system .... again, by programming and manufacturing

those carts themselves for sale to us.



7. that the cost of the assembled and tested main pc

board would be higher than the 5,300 Yen quoted

earlier to cover the cost of FCC compatibility. Also,

that the resulting new pc board would not fit into the

plastic being used by Nintendo for this unit in Japan.



By the time we finished the negotiations on that trip (5/17 -

5/20), the deal was changed to be as follows:



A. Nintendo would disclose all items called for in my

memo of 5/13/83 (to Henricks and Paul) except for item

13., namely, the LSI tapes for chip fabrication. This

disclosure would take place upon signing of the deal.

All items which are originally in Japanese are to be

furnished to us both in Japanese and in English.



B. Upon signing the deal, Nintendo would reassure Atari

about the source of supply of the 2 custom chips.



C. Any increases in the cost of the main pc board due to

FCC compliance will be a straight cost pass through

(no additional profit to Nintendo).



D. Atari and Nintendo would work together to attempt to

legal protect the CPU and PPU designs.



E. Nintendo would receive $5. Mil upon signing as an

advance against future payments.



F. Atari would have to commit to a minimum purchase of 2

million hardware units (some mixture of assembled and

tested pc boards and CPU/PPU chip sets) over the term

of the contract.



G. The term of the contract would be 4 years with a 4

year option to renew.



H. Nintendo would receive an additional $3.5 Mil in a

line of credit as an advance upon future payments upon

delivery of the 1st production-ready prototype of the

PAL West Germany version of the FCS (no later than

1/1/84). Similarly, an additional advance of $1.5 Mil

for SECAM.



I. The 2 million unit commitment would be broken-up into

1 million NTSC, 700,000 PAL, and 300,000 SECAM. If

Atari goes over in one catagory, it would directly

reduce our requirement in any other catagory of our

choice. As Skip Paul likes to put it, "cross-

collateralization is the key!"



J. Nintendo would commit to produce 100,000 units of the

assembled and tested pc board by August 31st if the

new pc design (to include FCC and to fit whatever

plastic we choose) can be completed by Nintendo

and approved by Atari by July 20th. In essence,

unlimited quanities (in excess of 1 million/month)

thereafter .... upon 3 months notice from Atari.



K. Atari will have the right to program for this system

with the full assistance of Nintendo.



L. Nintendo will, in the interests of expediency for this

Christmas season, program 4 Atari titles of our

choice. Source and object code which meets our

satisfaction (with respect to basic design, tuning,

and bug-free) to be delivered to us no later than

Sept. 1, 1983. The fee would be $100,000./title or

no non-recurring engineering fees would be charged as

long as we buy a minimum of 100,000 carts.



M. Carts would cost us 1,500 Yen/cart if in plastic but

unlabeled or 1,350 Yen if not in plastic (F.O.B.

Japan). Rate of production would be max. 5,000

units/week/title



