In May of 1985 Silicon Valley Computer Co. announced the introduction of its new personal computer, the "Kernel." The Kernal was designed for ultimate sale to small businesses who would use it for word processesing, data communications (e.g., MCI Electronic Mail), accounting, financial planning, and data base management (to keep track of inventory, accounts receivable and payable, inventory, etc). Rather than sell directly to these small business users, however, Silicon had arranged for sales of the Kernal to be made through a network of independent computer stores who would buy the machines from Silicon and then attempt to resell them to Silicon's targetted potential small business computer users.

As part of its marketing plan for the Kernal, Silicon entered into a contract with Downtown Business Computers for the purchase and sale of 100 Kernal computers between June 1, 1985 and May 31, 1986 for $1200 each.

Downtown agreed to help distribute the Kernal because of its desire to expand its line of computers. It already carried small machines for home

use and larger computers suitable for use in a large or medium sized business, but needed something to sell to small businesses and to

ambitious home users. The Kernal would fill this gap in Downtown's product line perfectly.

In order to successfully market the Kernal, it was important to have computer software, compatible for use on the computer, available for sale

to distributors of the Kernal, like Downtown. Therefore, Silicon contracted with "Minisoft Development Corporation" for the development of

four applications programs to be used with the Kernal: a word processor, a spreadsheet, a communications program, and a database program. Minisoft agreed to have the software available for sale to distributors of the Kernal by June 1, 1985 in quantities sufficient to sell one of each program with each Kernal computer.

It was anticipated that Downtown would sell the Kernal, together with a package of these four programs, which would be acquired from Minisoft, for a total resale price of $3000, resulting in a profit for Downtown on the sale of each machine of $1400.

In anticipation of obtaining the Kernal, and the accompanying software, Minisoft, Downtown began an aggressive advertising campaign in April of 1985, spending nearly $15,000 on local television, newspaper, and magazine ads promoting the Kernal and advertising its imminent arrival on the market in June.

Unfortunately, Minisoft experienced some unanticipated difficulties in preparing the software for distribution to Silicon's network of dealers. As a result of these difficulties, the software that Minisoft had promised Silicon that it would have available by June, would not be ready until October 1985, at the earliest. This delay amounted to a breach of Minisoft's contract with Silicon. Although Minisoft had not entered into any contracts with individual dealers like Downtown, the delay in making the software available would undoubtedly have a serious adverse affect on those dealer's ability to sell the Kernal.

Near the end of May, therefore, Silicon contacted its dealers, including Downtown, and told them them that although the Kernal would be delivered on time, beginning on June 1, 1985, that there would be a delay in delivery of the four applications programs that were still being designed for use with the Kernal's system. Silicon indicated in its letter to Downtown that it was hoped that the programs could be made available to the members of the network by October, but that it was possible that their delivery could be delayed until after the beginning of the new year.

Following this announcement Downtown cut back on its local advertising campaign for the Kernal. However, due to Silicon's continuing national campaign Downtown received many inquiries from small businesses regarding the Kernal. Because the Kernal could not be expected to sell without the accompanying software Downtown attempted to divert those who inquired about the Kernal to one of its other products which included a smaller computer designed primarily for home use and a machine larger than the Kernal designed for medium and large business users. Between June 1, 1985 and February 1, 1986 when the software finally arrived from Silicon, Downtown sold 50 of the smaller machines for $900, making a relatively small $300 profit on each machine, and 10 of the larger machines for between $5000 and $15000, depending on its size, with an average profit of $3000. All but a few of the smaller machines were sold for home use and all but 3 of the larger machines were sold to businesses who probably would not have been interested in the Kernal due to its small size in relation to thier needs.

ASSUME YOU ARE AN ASSOCIATE IN THE FIRM WHICH REPRESENTS SILICON. PREPARE A MEMORANDUM EXPLAINING THE POTENTIAL LIABILITY OF SILICON TO DOWNTOWN AS A RESULT OF MINISOFT'S DELAY, AND WHAT SILICON'S REMEDIAL RIGHTS ARE AGAINST MINISOFT.