<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MICRON ELECTRONICS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[MICRONPC.COM LOGO]
Micron Electronics, Inc.
900 East Karcher Road
Nampa, Idaho 83687
_______________________
Notice of 2000 Annual Meeting of Shareholders
Monday, November 20, 2000
_______________________
To The Shareholders:
Notice Is Hereby Given that the 2000 Annual Meeting of Shareholders of
Micron Electronics, Inc., a Minnesota corporation (the "Company"), will be held
on Monday, November 20, 2000, at 9:00 a.m. Mountain Time, at the Nampa Civic
Center, 311 3rd Street South, Nampa, Idaho, 83651, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers L.L.P. as
independent accountants of the Company for the fiscal year ending August 30,
2001.
3. To transact such other business as may properly come before the
meeting or any adjournment(s) or postponement(s) thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on September 28, 2000
are entitled to notice of and to vote at the meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
All shareholders are cordially invited to attend the meeting in person.
Shareholders will be required to furnish proof of ownership of the Company's
Common Stock before being admitted to the meeting. Shareholders holding shares
in the name of a broker, bank or other nominee must bring a statement from the
broker, bank or nominee confirming their ownership of the Company's Common
Stock.
To ensure your representation at the meeting in the event you cannot
attend, you are urged to return a proxy as soon as possible. Shareholders may
vote, sign, date and return the enclosed Proxy in the postage-prepaid envelope
provided. As an alternative to using the paper Proxy to vote, stockholders may
vote electronically via the Internet or by telephone. Please see "Telephone and
Internet Voting Alternatives" in the Proxy Statement for additional details.
Shareholders attending the meeting may vote in person, even if they have
returned a Proxy.
Financial and other information concerning the Company is contained in the
enclosed Annual Report and Form 10-K for the fiscal year ended August 31, 2000.
Sincerely,
JoAnne S. Pfeifer
Vice President, Administration, Corporate Secretary
Nampa, Idaho
October 27, 2000
<PAGE>
[MICRONPC.COM LOGO]
Micron Electronics, Inc.
900 East Karcher Road
Nampa, Idaho 83687
____________________
PROXY STATEMENT
2000 ANNUAL MEETING OF SHAREHOLDERS
Monday, November 20, 2000
____________________
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of the Board of Directors of
Micron Electronics, Inc., a Minnesota corporation (the "Company"), for use at
the 2000 Annual Meeting of Shareholders to be held on Monday, November 20, 2000,
at 9:00 a.m. Mountain Time, or at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"). The purposes of the Annual Meeting are set forth herein
and in the accompanying Notice of 2000 Annual Meeting of Shareholders. The
Annual Meeting will be held at the Nampa Civic Center, 311 3rd Street South,
Nampa, Idaho, 83651. This Proxy Statement and the enclosed Proxy were first
provided on or about October 27, 2000 to all shareholders entitled to vote at
the Annual Meeting. An annual report to shareholders for the fiscal year ended
August 31, 2000 is also provided with this Proxy Statement.
The Company's principal executive offices are located at 900 East Karcher
Road, Nampa, Idaho, 83687 and its telephone number is (208) 898-3434.
Revocability of Proxies
By executing and returning the Proxy (either by returning the paper Proxy
or by submitting your proxy by telephone or electronically via the Internet) you
are authorizing Joel J. Kocher and JoAnne S. Pfeifer to represent you and vote
your shares at the Annual Meeting according to your instructions. In the event
that any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the Proxies will be voted for any nominee whom shall be
designated by the then present Board of Directors to fill the vacancy or for the
balance of those nominees named without a substitute. The Board of Directors has
no reason to believe that any of the persons named will be unable or unwilling
to serve as a nominee or as a director if elected.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted by delivering to the Company a written
notice of revocation or a duly executed Proxy bearing a later date or by
attending the Annual Meeting and voting in person. Please note, however, that if
a shareholder's shares are held of record by a broker, bank or other nominee and
that shareholder wishes to vote at the Annual Meeting, the shareholder must
bring to the Annual Meeting a statement from the broker, bank or other nominee
confirming that shareholder's beneficial ownership of shares.
Solicitation
The cost of soliciting Proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by the Company's
directors, officers and employees personally or by telephone, facsimile,
telegram or by electronic means without additional compensation.
1
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
Record Date
Only shareholders of record at the close of business on September 28, 2000
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
Outstanding Shares
The Company has only one class of stock outstanding, the Company's common
stock, $.01 par value per share (the "Common Stock"). As of the Record Date,
96,662,670 shares of Common Stock were issued and outstanding.
Voting Rights
Each shareholder will be entitled to one vote for each share of Common
Stock held as of the Record Date for all matters, including the election of
directors. Shareholders do not have the right to cumulate their votes in the
election of directors.
A majority of all votes eligible to be cast will be required to establish a
quorum for the transaction of business at the Annual Meeting. Shares that are
voted "FOR", "AGAINST", "WITHHOLD" or "ABSTAIN" are treated as being present at
the Annual Meeting for the purpose of establishing a quorum and are also treated
as shares entitled to vote at the Annual Meeting (the "Votes Cast") with respect
to such matter. Abstentions will have the same effect as voting against a
proposal. Broker non-votes will be counted for the purpose of determining the
presence or absence of a quorum for the transaction of business, but such non-
votes will not be counted for the purpose of determining the number of Votes
Cast with respect to the particular proposal on which a broker has expressly not
voted. Thus, a broker non-vote will not affect the outcome of the voting on a
proposal.
2
<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth ownership information with respect to the
Common Stock of the Company and the common stock, $.10 par value per share, of
Micron Technology, Inc., a Delaware corporation and the parent of the Company
(the "Micron Technology, Inc. Common Stock"), as of the Record Date, with
respect to (i) persons known by the Company to beneficially own more than five
percent (5%) of the Company's Common Stock, (ii) each director of the Company,
(iii) each Named Executive Officer of the Company listed in the "SUMMARY
COMPENSATION TABLE" on page 7, and (iv) all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
Micron Electronics, Inc. Micron Technology, Inc.
Common Stock Common Stock
--------------------------- -------------------------
Amount and Amount and
Nature of Percent Nature of Percent
Beneficial of Beneficial of
Name of Beneficial Owner Ownership (1) Class Ownership (1) Class
------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Micron Technology, Inc.
8000 South Federal Way
Boise, Idaho 83716 58,622,863 60.7% N/A N/A
Joel J. Kocher 330,000 (2) * 15,596 (6) *
Michael S. Adkins 84,050 (2)(3)(4) 6,181 (4)(7) *
Scott L. Bower 58,179 (2)(3) * - -
Savino R. Ferrales 57,000 (2)(3) * - -
Jill D. Smith 20,000 (2)(3) * - -
Steven R. Appleton - (5) - 566,448 (7)(8)
John B. Balousek 25,000 (2) * - -
Robert Lee 16,000 * - -
Robert A. Lothrop 13,000 (2) * 135,336 (7)(9)
All directors and executive officers as a
Group (18 persons) (1)(2)(3)(4)(5)(6) 1,111,446 1.1% 730,451 0.1%
(7)(8)(9)
</TABLE>
* Less than 1%
_______________________
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
(2) Includes options to purchase shares of the Company's Common Stock
exercisable within 60 days of September 28, 2000 in the following amounts:
Mr. Kocher, 330,000; Mr. Adkins, 82,400; Mr. Bower, 53,750; Mr. Ferrales,
57,000; Ms. Smith; 20,000; Mr. Balousek, 13,000; Mr. Lothrop, 13,000; and
all directors and executive officers as a group (18 persons), 916,980.
(3) Includes shares held in a unitized stock fund under the Company's qualified
401(k) retirement plan which invests solely in the Common Stock of the
Company approximately as follows: Mr. Adkins, 540; Mr. Bower, 511, Mr.
Ferrales, 559; Ms. Smith, 550, and all directors and officers as a group (18
persons), 4,801.
(4) Does not include 400 shares of Company Common Stock held by Mr. Adkins'
spouse for benefit of his minor children. Also does not include 400 shares
of Micron Technology, Inc. Common Stock held by Mr. Adkins' spouse for
benefit of his minor children. Includes 1,650 shares of Company Common
Stock and 4,140 shares of Micron Technology, Inc. Common Stock held in joint
tenancy with his spouse.
(5) Mr. Appleton, a director of the Company, serves as Chairman of the Board,
President and Chief Executive Officer of Micron Technology, Inc. In
addition to the shares indicated in the above table, Mr. Appleton may be
deemed the beneficial owner of 58,622,863 shares of the Company's Common
Stock held by Micron Technology, Inc. Mr. Appleton disclaims beneficial
ownership of all of the shares of the Company's Common Stock held by Micron
Technology, Inc.
(6) Includes shares held in joint tenancy with Mr. Kocher's spouse.
(7) Includes options to purchase shares of Micron Technology, Inc. Common Stock
exercisable within 60 days of September 28, 2000 in the following amounts:
Mr. Adkins, 2,041; Mr. Appleton, 188,500; Mr. Lothrop, 48,000; and all
directors and executive officers as a group (18 persons), 244,765.
(8) Includes 20,000 shares of Micron Technology, Inc. Common Stock beneficially
owned by Mesa, LP.
(9) Does not include 848 shares of Micron Technology, Inc. Common Stock held by
Mr. Lothrop's spouse. Includes 79,170 shares of Micron Technology, Inc.
Common Stock held in joint tenancy with Mr. Lothrop's spouse. Also includes
rights to acquire 2,190 shares of Micron Technology, Inc. Common Stock
pursuant to the Micron Technology, Inc. Non-Employee Directors Stock
Incentive Plan.
3
<PAGE>
DIRECTORS
The directors of the Company, all of whom have been nominated for
reelection at the Annual Meeting, their ages, their business experience during
the past five years and their principal occupations as of the Record Date are
set forth below:
Steven R. Appleton, age 40, has served as a member of the Board of
Directors of the Company since April 1995. Mr. Appleton has served as the Chief
Executive Officer, President and Chairman of the Board of Directors of Micron
Technology, Inc. ("MTI") since September of 1994.
John B. Balousek, age 55, was appointed to the Board of Directors of the
Company in August 1999. Mr. Balousek served as President, Chief Operating
Officer, and Director of Foote, Cone & Belding Communications, Inc., a global
advertising and communications company, from May 1991 to February 1996, and as
Chairman and CEO of True North Technologies, a digital and interactive services
company of True North Communications, parent company of Foote, Cone & Belding
Communications, from March to July 1996. Mr. Balousek also served as a director
of True North Communications from February 1996 to January 1997. Mr. Balousek
is currently a director on the boards of Geoworks Corporation, Freeshop.com,
Inc. and Pets.com, all publicly held companies, and several privately held
companies.
Joel J. Kocher, age 44, was appointed President and Chief Operating
Officer, and a director of the Company in January 1998. In June 1998, Mr. Kocher
was appointed Chairman of the Board of Directors, President, Chief Executive
Officer and Chief Operating Officer. Mr. Kocher resigned from the position of
Chief Operating Officer concurrent with the appointment of Jill D. Smith as
Executive Vice President and Chief Operating Officer of the Company in April
1999. Mr. Kocher served as President of Worldwide Marketing, Sales and Service
at Dell Computer Corporation, a provider of personal computers through the
direct channel, from 1987 to September 1994. In October 1994, Mr. Kocher joined
Artisoft, Inc. where he served as Executive Vice President and Chief Operating
Officer until he was appointed President, Chief Operating Officer, and Director
in October 1995, serving in such capacities until December 1996. From December
1996 to August 1997, Mr. Kocher served as President and Chief Operating Officer
at Power Computing Corporation, a manufacturer of Macintosh OS compatible
systems.
Robert Lee, age 52, was appointed to the Board of Directors of the Company
in April 1999. Mr. Lee served as President of Business Communication Services of
Pacific Bell from April 1995 to May 1998, and as Executive Vice President of
California Markets Group of Pacific Bell from April 1993 to May 1995. Mr. Lee
currently serves as director of iAsiaWorks and CIDCO, Inc., both publicly held
companies, and several privately held companies.
Robert A. Lothrop, age 74, was appointed to the Board of Directors of the
Company in April 1995. Mr. Lothrop served as the Senior Vice President of the
J.R. Simplot Company, an agribusiness, from January 1986 until his retirement in
January 1991. Mr. Lothrop was elected to the Board of Directors of MTI in 1986.
In 1992, he was elected to the Board of Directors of Micron Semiconductor, Inc.
(then a wholly-owned subsidiary of MTI) and resigned as a director of MTI. Mr.
Lothrop was re-elected to the Board of Directors of MTI in 1994, at which time
he resigned from the Board of Directors of Micron Semiconductor, Inc.
There is no family relationship between any director or executive officer
of the Company.
Certain Relationships and Related Transactions
As of the Record Date, MTI owned approximately 60.7% of the outstanding
Common Stock of the Company. Two (2) of the five (5) nominees for director of
the Company are also directors of MTI. MTI and its subsidiaries supply and
purchase products and services used and produced by the Company.
During fiscal 2000, MTI supplied a substantial portion of the full
specification random access memory components used in the Company's personal
computer operations. Purchases by the Company of these components from MTI,
completed upon market terms and conditions, amounted to approximately
$55,021,000 in fiscal 2000.
In fiscal 2000, MTI and its subsidiaries paid the Company approximately
$7,282,000 for purchases of PC systems and other equipment. In fiscal 2000, the
Company paid MTI and its subsidiaries approximately $7,651,000 for equipment.
4
<PAGE>
Until January 1, 2000 the Company relied on MTI for certain information
systems, payroll, employee benefits, risk management and other administrative
services. In fiscal 2000, the Company paid approximately $476,000 to MTI for
such services. The Company assumed responsibility for these functions as of
January 1, 2000.
Effective on September 2, 1999, the Company and MTI entered into an Amended
and Restated Component Recovery Agreement (the "Amended Component Recovery
Agreement"). The Amended Component Recovery Agreement expires on August 30,
2001. Under the Amended Component Recovery Agreement, the cost to the Company of
components obtained from MTI will be negotiated on a quarterly basis, but in no
event will the cost be less than 50% of pre-tax net income generated from the
sale of SpecTek products derived from such components. The amount paid by the
Company to MTI for components during fiscal 2000 was as follows: first quarter,
50% of pre-tax net income; second quarter, 62.5% of pre-tax net income; third
quarter, 62.5% of pre-tax net income; and fourth quarter 75% of pre-tax net
income. The cost of components under the Amended Component Recovery Agreement
during the first quarter of fiscal 2001 will be 90% of pre-tax income. In fiscal
2000, the Company paid approximately $202,175,000 to MTI pursuant to the Amended
Component Recovery Agreement.
The Amended Component Recovery Agreement also provides that MTI will
purchase and lease back to SpecTek equipment as is reasonably appropriate for
SpecTek to perform its component recovery operations. MTI purchased capital
assets in the amount of approximately $35,230,000 from SpecTek in fiscal 2000.
The Company paid approximately $2,428,000 to MTI for the lease of such equipment
in fiscal 2000.
The Amended Component Recovery Agreement also provides that MTI will make
commercially reasonable efforts to obtain for the Company nonstandard memory
components produced by TECH Semiconductor Singapore Pte. Ltd. and KMT
Semiconductor Limited, joint venture companies in which MTI is affiliated. The
Company, MTI and the joint venture companies may agree to utilize a pricing
matrix based on effective yields and worldwide average sales prices in order to
establish prices for the components from the joint venture companies. In such
case, the price paid by the Company for components from the joint ventures will
be determined under the matrix, rather than as a percentage of pre-tax net
income. During fiscal 2000, the Company paid MTI and its wholly-owned
subsidiary, Micron Semiconductor Asia Pte. Ltd., approximately $43,206,000 for
non-standard memory components manufactured by the joint venture companies.
Under the Amended Component Recovery Agreement, the Company has an option
to require MTI to purchase all of the assets of SpecTek for a purchase price
equal to the net book value of the assets. MTI has an option to require the
Company to sell to it all of the assets of SpecTek under the same terms and
conditions. These options were not exercised in fiscal 2000 but are exercisable
at any time. Additionally, the Company would have an option to require MTI to
purchase, and MTI would have the option to require the Company to sell to it,
the assets of SpecTek at book value if MTI's ownership in the Company falls
below 50% or if an unrelated third party acquires more than 30% of the Company.
Concurrent with the Amended Component Recovery Agreement, the Company and
Micron Semiconductor Products, Inc. ("MSP"), a subsidiary of MTI, entered into
an Exclusive Sales Representative Agreement (the "Sales Representative
Agreement") under which MSP will serve as exclusive sales representative for
SpecTek memory products. Under the Sales Representative Agreement, MSP will not
be entitled to any sales commission but is entitled to charge the Company for
certain employee costs and reasonable sales and marketing expenses. During
fiscal 2000, the Company paid MSP approximately $374,000 pursuant to this
agreement.
On March 17, 2000 the Company assigned to MTI 58 patents, 176 patent
applications and 1 invention disclosure in exchange for $4,500,000 in cash. The
cash received in excess of historical cost was $2,285,000 net of tax, which was
recorded as an increase in additional paid in capital.
On September 1, 2000, the Company entered into a Preferred Stock Purchase
Agreement, under which it acquired a 27.4% interest in ConnectedSupport, Inc.,
an on-line provider of PC service and support, in exchange for $1,000,000 and
certain tangible and intangible property. Scott Bower, who resigned from his
position as Vice President and General Manager of the Company's subsidiary,
Micron Computer Services, Inc., owns a 35.6% interest in ConnectedSupport, Inc.,
and serves as its Chief Executive Officer.
5
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers and persons who own beneficially more than
ten percent (10%) (collectively, the "Beneficial Owners") of a registered class
of the Company's equity securities, to file initial reports of ownership and
reports of changes of ownership with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers. Copies of all filed
reports are required to be furnished to the Company pursuant to Section 16(a).
Based solely on the reports received by the Company and on written
representations from reporting persons, the Company believes that the Beneficial
Owners complied with all applicable Section 16(a) filing requirements during the
fiscal year ended August 31, 2000 with the exception of Mr. Robert Lee,
director, who filed late a Form 4 for the month of April 2000, Mr. Steven H.
Laney, an executive officer of the Company, who filed late a Form 4 for the
month of January 2000 and Mr. James Stewart, an executive officer of the
Company, who filed late a Form 4 for the month of February 2000.
Board Meetings and Committees
The Board of Directors of the Company held a total of eight (8) meetings
during the Company's fiscal year ended August 31, 2000. The Board of Directors
has formed an Audit Committee and a Compensation Committee. A Nominating
Committee has not been formed.
The Audit Committee held three (3) meetings during fiscal 2000. Serving on
the Audit Committee are Directors John B. Balousek, Robert Lee and Robert A.
Lothrop. The Audit Committee is primarily responsible for reviewing the services
performed by the Company's independent accountants and internal auditing
function, and evaluating the Company's accounting principles, system of internal
accounting controls and adherence with the Company's internal compliance codes.
See "REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS."
The Compensation Committee held eight (8) meetings during fiscal year 2000.
Serving on the Compensation Committee are Directors John B. Balousek, Robert Lee
and Robert A. Lothrop.. The Compensation Committee's primary responsibility is
to review and establish the compensation of the Company's officers, including
salary, bonuses, stock option grants, employment contracts and other
compensation. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING EXECUTIVE COMPENSATION."
During fiscal 2000, all directors attended 75% or more of the aggregate
number of meetings of the Board of Directors and of meetings of all committees
of the Board on which they served.
6
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Compensation of Executive Officers
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years for services rendered to the Company, its
predecessors and its subsidiaries, awarded to or earned by any individual who
served as Chief Executive Officer of the Company during fiscal 2000 and for each
of the other four most highly compensated executive officers of the Company who
were serving as executive officers at the end of fiscal 2000 whose combined
salary and bonus earned in fiscal 2000 exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- -------------
Other Securities
Fiscal Annual Underlying All Other
Name and Principal Position Year Salary (2) Bonus (3) Compensation (5) Options (6) Compensation (10)
----------------------------- ------ ---------- --------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Joel J. Kocher 2000 $450,000 $ 351,855 - 900,000 (7) $267,807 (11)
Chairman, President, and 1999 448,077 255,768 - 50,000 3,670 (11)
Chief Executive Officer 1998 220,769 300,362 - 650,000 (8) 55,984 (11)
Michael S. Adkins 2000 $237,115 $ 161,781 - 200,000 (7) $ 12,424
Senior Vice President and 1999 210,096 145,000 - 70,000 7,630
Group General Manager 1998 206,405 186,204 - 135,000 (9) 19,988
Scott L. Bower 2000 $260,000 $ 127,235 - 20,000 $ 54,000 (12)
Former Vice President, 1999 260,000 154,395 (4) - 15,000 8,965 (11)
General Manager Micron 1998 30,000 46,875 (4) - 125,000 12,379 (11)
Computer Services, Inc. (1)
Savino R. Ferrales 2000 $260,000 $ 114,869 - 190,000 (7) $ 7,000
Senior Vice President, 1999 250,000 96,562 - 20,000 3,000
Human Resources 1998 137,500 113,830 - 130,000 (9) 81,591 (11)
Jill D. Smith 2000 $400,000 $ 70,251 - 50,000 $ 39,634 (11)
Executive Vice President 1999 164,615 74,092 - 400,000 5,000 (11)
and Chief Operating Officer 1998 - - - - -
</TABLE>
_________________________
(1) Mr. Bower resigned as an officer of the Company effective September 1, 2000.
(2) Includes compensation deferred by the employee under the Company's qualified
401(k) retirement plans.
(3) Includes amounts paid under the Company's profit sharing plans and amounts
awarded and paid under the Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus
Plan) for Fiscal 2000 and earned and paid under the Incentive Plan for prior
fiscal years. See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS REGARDING EXECUTIVE COMPENSATION."
(4) Includes bonus payments paid upon commencement of employment in the
following amounts: Mr. Bower, $25,000 (1999), $25,000 (1998).
(5) Excludes certain perquisites and other amounts which in the aggregate did
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonuses for the officer.
(6) Except as otherwise noted, consists of options to purchase shares of the
Company's Common Stock under the Company's 1995 Stock Option Plan.
(7) Includes options to purchase HostPro, Inc., a subsidiary of the Company
("HostPro"), common stock granted under the HostPro 2000 Equity Incentive
Plan II in the following amounts: Mr. Kocher, 900,000; Mr. Adkins, 120,000;
Mr. Ferrales, 150,000. See "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS REGARDING EXECUTIVE COMPENSATION."
(8) Consists of 500,000 options to purchase shares of the Company's Common Stock
granted under the Company's 1995 Stock Option Plan and 150,000 options to
purchase shares of the Company's Common Stock granted outside the 1995 Stock
Option Plan.
7
<PAGE>
(9) Includes options granted in exchange for previously granted options which
were subsequently canceled pursuant to an option repricing program
implemented in fiscal 1998 in the following amounts: Mr. Adkins, 85,000;
Mr. Ferrales, 37,735.
(10) Except as otherwise noted, consists of contributions made by the Company
under qualified 401(k) retirement plans and cash paid under sabbatical and
time-off plans.
(11) Includes payment by the Company for relocation costs, including, in certain
instances, reimbursement for related taxes, in the following amounts for
fiscal 2000 unless otherwise noted: Mr. Kocher, $265,254, $3,670 (1999)
and $54,484 (1998); Mr. Bower, $7,465 (1999) and $12,379 (1998); Mr.
Ferrales, $81,591 (1998); Ms. Smith. $31,711 and $5,000 (1999).
(12) Includes payment of $48,000 by the Company for certain commuting related
expenses.
OPTION GRANTS IN FISCAL 2000
The following table provides information with respect to stock options
granted in fiscal 2000 to each of the Named Executive Officers. In accordance
with the rules of the SEC, the table sets forth the hypothetical gains or
"option spreads" that would exist for the options at the end of their respective
terms based on assumed annual rates of compound stock price appreciation of 0%,
5% and 10% from the dates the options were granted to the end of the respective
option terms. Actual gains, if any, on option exercises are dependent on the
future performance of the Company's Common Stock and HostPro common stock and
overall market conditions. There can be no assurance that the potential
realizable values shown in this table will be achieved.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Potential Realizable
Percent of Market Value at
Number of Total Price of Assumed Annual Rates
Securities Options Exercise Securities of Stock
Underlying Granted to Price On Price Appreciation for
Options Employees in Per Date of Expiration Option Term
----------------------------------
Name Granted (1) Fiscal 2000 (4) Share Grant Date 0% 5% 10%
----------------------- ---------- -------------- -------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel J. Kocher 900,000 (2) 23.22 % $ 2.25 $ 2.25 8/17/10 $ - $1,273,512 $3,227,328
Michael S. Adkins 30,000 1.10 % $ 12.00 $ 12.00 2/17/10 $ - $ 226,402 $ 573,747
20,000 0.74 12.75 12.75 3/03/10 - 160,368 406,404
30,000 (3) 1.10 6.38 12.75 3/03/10 191,100 431,652 800,706
120,000 (2) 3.10 2.25 2.25 8/17/10 - 169,802 430,310
Scott L. Bower 10,000 0.37 % $ 12.75 $ 12.75 3/03/10 $ - $ 80,184 $ 203,202
10,000 (3) 0.37 6.38 12.75 3/03/10 63,700 143,884 266,902
Savino R. Ferrales 20,000 0.74 % $ 12.75 $ 12.75 3/03/10 $ - $ 160,368 $ 406,404
20,000 (3) 0.74 6.38 12.75 3/03/10 127,400 287,768 533,804
150,000 (2) 3.87 2.25 2.25 8/17/10 - 212,252 537,888
Jill D. Smith 50,000 (3) 1.84 % $ 6.38 $ 12.75 3/03/10 $318,500 $ 719,420 $1,334,511
</TABLE>
______________________
(1) Unless otherwise noted, represents options granted pursuant to the
Company's 1995 Stock Option Plan which vest over four (4) years in
increments of twenty-five percent (25%) per year. Options granted pursuant
to the Company's 1995 Stock Option Plan are granted as incentive stock
options ("ISOs") or nonstatutory stock options ("NSOs"). ISOs are granted
with an exercise price equal to 100% of the fair market value (as defined
in the plan) of the Company's Common Stock on the date of grant. Except as
otherwise noted, NSOs granted and set forth in the above table were granted
with an exercise price equal to 100% of the fair market value (as defined
in the plan) of the Company's Common Stock on the date of grant.
(2) Represents options granted pursuant to the HostPro 2000 Equity Incentive
Plan II with an exercise price equal to 100% of the fair market value (as
defined in the plan). See "REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS REGARDING EXECUTIVE COMPENSATION."
(3) Represents NSOs granted pursuant to the Company's 1995 Stock Option Plan at
50% of fair market value (as defined in the plan).
(4) Reflects percent of total options of the Company or HostPro, as applicable,
granted to employees.
8
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 2000
AND AUGUST 31, 2000 OPTION VALUES
The following table provides information regarding Company and MTI stock
option exercises in fiscal 2000 by the Named Executive Officers, and the value
of such officers' unexercised options at August 31, 2000:
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-The-Money
Options at Fiscal Options at Fiscal
Year-End Year-End
-------- --------
Shares Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise Realized Unexercisable (U) Unexercisable (U) (4)
------------------------------- --------------- ----------- ------------------ --------------------------
<S> <C> <C> <C> <C>
Joel J. Kocher - - 320,000 (E) $ 1,494,100 (E)
1,280,000 (U) (2) 1,654,150 (U)
Michael S. Adkins 115,492 (1) $ 3,585,632 59,401 (E) (3) $ 211,274 (E)(5)
302,473 (U) (2)(3) 597,934 (U)(5)
Scott L. Bower - - 53,750 (E) $ 74,305 (E)
106,250 (U) 209,415 (U)
Savino R. Ferrales - - 57,000 (E) $ 117,123 (E)
283,000 (U) (2) 362,929 (U)
Jill D. Smith - - 20,000 (E) $ 44,650 (E)
430,000 (U) 1,219,975 (U)
</TABLE>
_______________________________
(1) Reflects exercise of options to purchase MTI Common Stock (reflecting a 2-
for-1 stock split of MTI Common Stock, effected in the form of a stock
dividend, as of May 1, 2000).
(2) Includes options to purchase HostPro common stock in the following amounts:
Mr. Kocher, 900,000 (U); Mr. Adkins, 120,000 (U); Mr. Ferrales, 150,000 (U).
See "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION."
(3) Includes options to purchase MTI Common Stock (reflecting a 2-for-1 stock
split of MTI Common Stock, effected in the form of a stock dividend, as of
May 1, 2000) in the following amounts: Mr. Adkins, 2,001 (E), 1,873 (U).
(4) Except as otherwise noted, reflects options to purchase Company Common
Stock.
(5) Includes the value of options to purchase MTI Common Stock in the following
amounts: Mr. Adkins, $132,041 (E), $123,595 (U).
Compensation of Directors
Members of the Board of Directors who are not employees, officers or
directors of the Company, MTI, or any subsidiary or affiliate of the Company or
MTI are paid an annual retainer of $40,000 (the "Annual Retainer"). The Annual
Retainer is payable in arrears in equal quarterly installments within the first
thirty days of each fiscal quarter to qualified directors holding office during
the prior fiscal quarter. Qualified directors who hold office for less than an
entire fiscal quarter receive a pro-rated portion of the Annual Retainer.
Additionally, all directors who are not employees of the Company, MTI or their
subsidiaries or affiliates are to receive a formula Nonstatutory Stock Option (a
"Formula Option") of 10,000 shares of Common Stock upon appointment to the Board
and such directors serving on the Board as of the date immediately following
each annual meeting of the Company's shareholders receive a Formula Option as of
the date of the meeting for 3,000 shares of Common Stock. The Company reimburses
directors for travel and lodging expenses, if any, incurred in connection with
attendance at Board meetings or performance of director services.
Employment and Severance Arrangements
The Company has entered into employment and severance agreements (the
"Agreements") with Mr. Kocher, Mr. Adkins and Mr. Ferrales and certain other
officers of the Company relating to termination and compensation upon
termination of the officer's active employment with the Company. The Agreements
allow either the Company or the
9
<PAGE>
officer to terminate the officer's active employment with the Company for any
reason, voluntary or involuntary, with or without cause, by providing notice to
that effect in writing. The Agreements provide that during a six-month or one-
year "Transition Period" following termination, the officer will continue to
receive all benefits "customarily provided" to such officer while employed,
including, but not limited to, salary, bonuses, executive bonuses, benefits and
continued vesting of any granted stock options. "Customarily provided" refers to
Company practices and plans with respect to the officer's benefits and
compensation in effect as of the date of termination of the officer's active
employment with the Company. However, such terminated officers will not be
entitled to any new grants of interest in future executive bonuses, any new
grants of stock options, or payment of any compensation under an incentive
program that is deferred, due to payment criteria of such incentive program, as
those criteria existed as of the date of termination of the officer's active
employment with the Company, beyond the Transition Period. Joseph M. Daltoso,
former Chairman and Chief Executive Officer, Gregory D. Stevenson, former
President and Chief Operating Officer, and T. Erik Oaas, former Executive Vice
President and Chief Financial Officer have Agreements with two-year Transition
Periods. Certain officers, including Ms. Smith, have entered into employment and
severance agreements which provide for a lump sum payment of six (6) or twelve
(12) months base salary upon non-voluntary termination, rather than for payments
and benefits over a Transition Period as provided under the Agreements.
During fiscal 2000, the following former Named Executive Officers received
cash compensation under the Agreements in the amounts noted: Mr. Daltoso,
$572,519; Mr. Stevenson, $185,042; Mr. Oaas, $435,683; Mr. Stephen S. Brown,
Vice President, Chief Information Officer, $125,000; Mr. George A. Haneke,
Senior Vice President, Business Systems Planning, $17,692; and Ms. Judith A.
Bitterli, Vice President, Office of the General Manager Micron PC, $67,308.
Change of Control Agreements
A Change of Control, for purposes other than the 1995 Stock Option Plan and
the HostPro 2000 Incentive Equity Plan I and II, shall mean the acquisition by
any person or entity of securities of the Company which results in such person
or entity owning or controlling more of the combined voting power of the Company
than does MTI and owning or controlling more than 35% of the voting securities
of the Company or, subject to MTI owning or controlling more than 35% of the
securities of the Company, the acquisition by any person or entity of more than
35% of the common stock of MTI.
Upon a Change of Control of the Company (as defined above), a cash lump-sum
payment in the amount equal to the salary payable under the Agreements shall be
made to each officer in exchange for any further salary obligations thereunder.
In addition, (i) the chief executive officer, president, general manager and
vice president (except Area Vice Presidents as defined below) of the Company and
its subsidiaries shall be entitled to receive two years base salary, (ii) each
vice president of the Company and its subsidiaries not elected by the applicable
board of directors ("Area Vice President") and each officer and management
director of the Company and its subsidiaries not otherwise included in (i) shall
receive one year base compensation or total target compensation, in each case if
such employee has not received a comparable offer of employment, following such
Change of Control. An employee's right to terminate employment under the
Agreements shall terminate upon acceptance of such comparable offer of
employment. A comparable offer of employment is defined as an agreement
providing for responsibilities, status, cash compensation, benefits and location
comparable to those in effect before the Change of Control as reasonably
determined by the employee (with a term of three years for the chief executive
officer and president, two years for the vice presidents and general managers of
subsidiaries (excluding Area Vice Presidents) and one year for Area Vice
Presidents, officers and management directors identified in (ii) above,
providing one year's salary and benefits in the event of death and disability
and which has severance consisting of continued compensation and benefits
through the end of the term). All other employees of the Company and its
subsidiaries not included in (i) and (ii) above shall receive six months base
salary or total target compensation if the employee has not received an offer of
employment providing comparable compensation, benefits and location following
the Change of Control.
The Micron Electronics, Inc. Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus Plan)
provides that, upon a Change of Control of the Company, the Company shall pay to
each eligible executive bonuses allocated, if any, under the Incentive Plan for
the current fiscal year at the maximum level established by the Board of
Directors as of the most recent allocation and any bonuses that have been
awarded for previous years under the Incentive Plan but not previously paid.
10
<PAGE>
Upon a Change of Control, the Company shall pay all employees such amounts,
if any, that are necessary to place such employees in the same after tax
position as the employees would have been in had no excise tax been imposed
under Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code").
A Change of Control for purposes of the 1995 Stock Option Plan shall mean
the acquisition, by any person or entity, of securities of the Company which
results in such person or entity owning or controlling more of the combined
voting power of the Company than does MTI and owning or controlling more than
20% of the voting securities of the Company or the acquisition by any person or
entity of more than 35% of the Common Stock of MTI. The Micron Electronics, Inc.
1995 Stock Option Plan provides that, in the event of a Change of Control of the
Company, the unexercised portion of any options under such plan shall be
immediately exercisable.
Under certain circumstances, a Change of Control of the Company would
result in vesting of options granted under the HostPro 2000 Incentive Equity
Plan I and II. For purposes of these plans, a Change of Control shall mean the
acquisition by any person or entity of securities of the Company where the
Company is the Parent of HostPro, and where such person or entity, directly,
indirectly or beneficially, acting alone or in concert, (i) owns or controls
more of the combined voting power of all classes of voting securities of the
Company than does MTI and (ii) owns or controls more than twenty percent (20%)
of the combined voting power of all classed of voting securities of the Company.
Compensation Committee Interlocks and Insider Participation
Serving on the Compensation Committee are Directors John B. Balousek,
Robert Lee and Robert A. Lothrop. During fiscal 2000, Mr. Lothrop was a director
of MTI.
11
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, the following Compensation
Committee report, the Audit Committee Report on page 15 and the performance
graph on page 16 shall not be incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
REGARDING EXECUTIVE COMPENSATION
Compensation Committee
Serving on the Compensation Committee are Directors John B. Balousek,
Robert Lee and Robert A. Lothrop. The Committee met eight (8) times in fiscal
2000 and intends to meet annually or more frequently as the Company's Board of
Directors may request.
The Committee's primary responsibility is to review and establish the
compensation of the Company's officers, including salary, bonuses, stock option
grants, employment contracts and other compensation. Compensation for the
Company's executive officers for fiscal 2000, including base salary, performance
bonuses, stock option grants and other compensation, was determined by the
Compensation Committee and reviewed by the Company's Board of Directors.
Executive Officer Compensation
The Company's executive officer compensation programs are described below
for the purpose of providing a general understanding of the various components
of executive officer compensation. These executive officer compensation programs
are designed to attract, retain and reward highly qualified executive officers
who are important to the success of the Company and to provide incentives
relating directly to the financial performance and long-term growth of the
Company, thus aligning executive interests with the interests of the
shareholders. The various components of the Company's executive officer
compensation programs are, in most cases, the same as those generally made
available to employees of the Company. The following is a summary of the
executive officer compensation programs:
Cash Compensation
Base Salary. The base salary of each executive officer is established
-----------
primarily upon (i) a review of executive compensation offered by companies
generally comparable to the Company, and (ii) a subjective evaluation of the
executive officer's expected contribution to the Company, including individual
performance, level of responsibility and technical expertise.
Performance Bonuses. Cash bonuses to executive officers are intended to
-------------------
reward executive officers for the Company's financial performance and
achievement of individual performance goals during the fiscal year and are
earned and paid pursuant to the Management and Executive Incentive Plan (the
"Incentive Plan", formerly the Micron Electronics, Inc. Executive Bonus Plan),
which was approved by the Company's shareholders in November 1999. Under the
Incentive Plan, individual targets are established for a performance period
based on the officers expected contribution to the Company and market analysis.
Fiscal 2000 bonuses were awarded under the Incentive Plan based on (i) after-tax
net profit of the Company for the fiscal year, (ii) business unit operating
income, where appropriate, and (iii) achievement of individual performance
criteria for the applicable performance period.
Since fiscal 1998 performance bonuses were paid in a lump sum. Performance
bonuses awarded for prior fiscal years are generally payable over a five-year
period.
Profit Sharing. The Company distributes, on a quarterly basis,
--------------
approximately five percent (5%) of its consolidated quarterly after-tax net
profits generally on an equal basis to eligible employees (including executive
officers) of the Company and its subsidiaries.
12
<PAGE>
Incentive Bonuses. From time to time, incentive cash bonuses are approved
-----------------
for payment to employees (including executive officers) for the achievement of
milestones, the completion of projects identified as contributing to Company's
success and the attainment of technological advances.
Equity Compensation
To provide long-term incentive to the executive officers and employees of
the Company and its subsidiaries, the Company grants incentive and nonstatutory
stock options to such persons pursuant to the Company's 1995 Stock Option Plan.
Such options provide a link to long-term growth in the value of the Company's
Common Stock. The criteria used to determine who receives stock options and the
number of stock options granted is generally based on an evaluation of the
individual's long-term impact to the Company. That criteria includes: ability to
directly contribute to the Company's corporate success and future revenue
growth, ability to develop efficiencies that result in cost reductions without
compromising product quality or quantity, ability to develop processes or
programs that directly support the attainment of corporate objectives, ability
to invent, design, or develop new products or components, or develop innovative
processes that make the Company more competitive, ability to manage key
departments/functions and other relevant items, as appropriate. Stock options
granted to employees and executive officers after April 28, 1999 typically have
a term of ten (10) years and vest twenty-five percent (25%) each year for four
(4) years from the date of grant. Stock options granted to employees and
executive officers prior to April 28, 1999 typically have a term of six (6)
years and vest twenty percent (20%) each year for five (5) years from the date
of grant.
On August 17, 2000 the Boards of Directors of the Company and HostPro
approved the 2000 Equity Incentive Plan I and 2000 Equity Incentive Plan II,
reserving a total of 10,000,000 shares of HostPro common stock for issuance
thereunder. The purpose of the plans is to provide incentives to attract, retain
and motivate eligible persons whose present and potential contributions are
important to the success of HostPro by offering such persons an opportunity to
participate in HostPro's future performance the award of options, restricted
stock and stock appreciation rights. The grants awarded during fiscal 2000
become vested as to 25% of the shares issuable under the option grant after one
year from the date of grant, and thereafter becomes vested as to 2.08333% of the
total shares of the option grant per month. However, the option may not be
exercised prior to the earlier of (i) issuance to the public of shares of
HostPro common stock pursuant to a Form S-1 Registration Statement under the
Securities Act of 1933, as amended or (ii) five (5) years from the date of
grant; provided that any option granted to a resident of California who is not
an officer or director of HostPro shall become exercisable at the rate of no
less than twenty percent (20%) per year over five (5) years from the date of
grant.
Other Compensation
In addition to cash and equity compensation programs, executive officers
participate in various other employee benefit plans, including, but not limited
to, a time-off plan. Under the time-off plan, full-time employees of the
Company and its subsidiaries (including executive officers) are allowed to
accumulate a predetermined number of hours based on length of service for
vacation, holidays, sick time, emergencies and personal needs. Hours
accumulated in excess of 400 hours are paid in cash to the employee. Executive
officer participation in various clubs, organizations and associations may also
be funded by the Company or its subsidiaries.
CEO Compensation
Joel J. Kocher is the Chairman of the Board of Directors, Chief Executive
Officer and President of the Company. Mr. Kocher's annual base salary is based
on an analysis of compensation paid to chief executive officers of comparable
companies and on a subjective analysis of Mr. Kocher's experience, level of
responsibility and contribution to the Company. During fiscal 2000 Mr. Kocher's
annual base salary was at $450,000.
In October 2000, pursuant to the Incentive Plan, Mr. Kocher was awarded and
paid $351,000 for fiscal 2000 performance.
During fiscal 2000, the Compensation Committee amended the vesting criteria
of options to purchase 150,000 shares of the Company's Common Stock granted to
Mr. Kocher during fiscal 1998. The Compensation Committee accelerated vesting of
50,000 of such options in recognition of Mr. Kocher's contribution to the
development of the Company's Internet services business and retail direct
strategy. Further, 50,000 of such options vest upon
13
<PAGE>
achievement of year-over-year net revenue growth and positive operating income
for the Company's PC business for one fiscal quarter. Finally, 50,000 of such
options vest upon an increase of $1.5 billion in the Company's market
capitalization or completion of other value creating events related to the
Company's Internet services business. The vesting criteria were modified to more
closely align to the Company's strategic priorities and shareholder interests.
During fiscal 2000, Mr. Kocher was granted options to purchase a total of
900,000 shares of HostPro common stock granted under the HostPro 2000 Equity
Incentive Plan II. The options vest at a rate of 25% after one year from the
date of grant and at a rate of 2.0833% monthly thereafter for three years. The
options expire after a term of ten (10) years.
Tax Deductibility of Executive Compensation
The Omnibus Budget Reconciliation Act of 1993 added Section 162(m) to the
Internal Revenue Code. Section 162(m) limits deductions for certain executive
compensation in excess of $1 million. Certain types of compensation are
deductible only if performance criteria are specified in detail, and payments
are contingent upon stockholder approval of the compensation arrangement. The
Company believes that it is generally in the best interests of its stockholders
to structure its compensation plans to achieve maximum deductibility under
Section 162(m) with minimal sacrifices in flexibility and corporate objectives.
With respect to non-equity compensation arrangements and amounts paid under the
Incentive Plan, the Compensation Committee has reviewed the terms of those
arrangements likely to be subject to Section 162(m) and believes that at this
time the Company is in compliance with Section 162(m). The Company also
believes the 1995 Stock Option Plan and the HostPro 2000 Equity Incentive Plans
are in compliance with Section 162(m). The Compensation Committee will continue
to monitor compliance with Section 162(m) and will take appropriate action if
warranted. Since corporate objectives may not always be consistent with the
requirement for full deductibility, it is conceivable that the Company may enter
into compensation arrangements under which payments are not deductible under
Section 162(m). Deductibility is not the sole factor used by the Compensation
Committee in ascertaining appropriate levels or methods of compensation.
Compensation Committee of the Board of Directors
John B. Balousek
Robert Lee
Robert A. Lothrop
14
<PAGE>
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Board of Directors adopted the Audit Committee Mission Statement and
Charter in April 2000, which is attached as Appendix A. The Board of Directors
has reviewed Rule 4200(a)(14) of the National Association of Securities Dealers
and has determined the Audit Committee of the Board of Directors (the "Audit
Committee") is independent as defined under the rule.
The Audit Committee has reviewed and discussed the audited financial
statements with the Company's management team. The Audit Committee has
discussed with PricewaterhouseCoopers L.L.P., the independent accountants of the
Company, those matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU (S)380), as may be modified or
supplemented. The Audit Committee has received the written disclosures and the
letter required by Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees),
as may be modified or supplemented, and has discussed with the independent
accountants, the independent accountants' independence.
Based upon the review and discussions referred to in the above paragraph,
the Audit Committee recommended to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the last fiscal year.
Audit Committee of the Board of Directors
John B. Balousek
Robert Lee
Robert A. Lothrop
15
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
Company's Common Stock for the period from August 31, 1995 through August 31,
2000 with the cumulative total return for the same period as (i) the Center for
Research in Securities Prices ("CRSP") Total Return Index for The Nasdaq Stock
Market (U.S. Companies) and (ii) the CRSP Total Return Index for Nasdaq Computer
Manufacturer Stocks. These indices are prepared and made available to the
public by the Center for Research in Securities Prices at the University of
Chicago. The Company operates on a 52/53 week fiscal year which ends on the
Thursday closest to August 31. Accordingly, the last trading day of the
Company's fiscal year varies. For consistent presentation and a more meaningful
comparison to the indices shown herein, the Company's stock performance graph
was plotted assuming an August 31 fiscal year-end. These comparisons assume an
investment of $100 at the commencement of the period and the reinvestment of
dividends paid during the period, as applicable.
Note: Management cautions that the stock price performance information
shown in the graph below may not be indicative of current stock price levels or
future stock price performance.
[GRAPH]
The performance graph was plotted using the following data:
<TABLE>
<CAPTION>
Year Ending August 31
----------------------------------------
1995 1996 1997 1998 1999 2000
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Micron Electronics, Inc. $ 100 $ 88 $ 91 $ 65 $ 54 $ 77
CRSP Total Return Index for The Nasdaq Stock
Market (U.S. Companies) 100 113 157 149 276 422
CRSP Total Return Index for Nasdaq Computer
Manufacturer Stocks 100 119 189 229 536 993
</TABLE>
16
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
The Company's Board of Directors has fixed the number of directors at five
(5), and it is contemplated that a board of five (5) directors will be elected
at the Annual Meeting. Unless otherwise instructed, the proxy holders will vote
the Proxies received by them for the five (5) nominees named below, all of whom
are presently directors of the Company and are identified in the proxy statement
under "DIRECTORS". In the event that any nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the Proxies will be voted for
any nominee whom shall be designated by the then present Board of Directors to
fill the vacancy or for the balance of those nominees named without a
substitute. In the event that additional persons are nominated for election as
directors, the proxy holders intend to vote all Proxies received by them in such
a manner as will ensure the election of as many of the nominees listed below as
possible. It is not expected that any nominee will be unable or will decline to
serve as a director. The term of office of each person elected as a director
will continue until the next annual meeting of shareholders and until such
person's successor has been duly elected and qualified, or until such person's
earlier death, resignation, removal or disqualification.
The Board's nominees for re-election at the Annual Meeting are Steven R.
Appleton, John B. Balousek, Joel J. Kocher, Robert Lee and Robert A. Lothrop.
The Board recommends a vote "FOR" the election of each of the foregoing
nominees.
The five (5) nominees receiving the highest number of affirmative votes of
the shares of the Company's Common Stock entitled to vote on this matter shall
be elected as the directors.
PROPOSAL TWO:
TO RATIFY THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers L.L.P.,
independent accountants, to audit the consolidated financial statements of the
Company for the fiscal year ending August 30, 2001, and recommends that
shareholders vote "FOR" ratification of such appointment.
The affirmative vote of the holders of a majority of the outstanding shares
of the Company's Common Stock present or represented and voting at the Annual
Meeting will be required for ratification of such appointment. In the event that
the shareholders fail to ratify such appointment, the Board of Directors will
reconsider its selection.
Representatives of PricewaterhouseCoopers L.L.P. are expected to be present
at the Annual Meeting. Such representatives will have the opportunity to make a
statement if they so desire, and are expected to be available to respond to
appropriate questions.
17
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted at the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
persons named in the accompanying form of Proxy will vote, in their discretion,
the shares of the Company's Common Stock they represent.
TELEPHONE AND INTERNET VOTING ALTERNATIVES
Shareholders with shares held directly or in an account at a brokerage firm
may vote those shares telephonically by calling the telephone number or
accessing the Internet site referenced in your voting form. Votes submitted
electronically via the Internet or by telephone must be received by midnight,
Eastern Time, on November 19, 2000.
The Internet voting procedures are designed to authenticate shareholder
identities, to allow shareholders to give their voting instructions and to
confirm that the shareholders' instructions have been recorded properly.
Shareholders voting via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne by the shareholder.
The giving of a Proxy will not affect your right to vote in person should you
decide to attend the Annual Meeting. Shareholders holding shares in the name of
a broker or other nominee who wish to vote in person at the Annual Meeting must
bring a statement from the broker or nominee confirming ownership of the
Company's Common Stock.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR
2001 ANNUAL MEETING OF SHAREHOLDERS
In order to be included in the proxy statement and form of proxy relating
to the Company's 2001 Annual Meeting of Shareholders, proposals of shareholders
of the Company that are intended to be presented at such meeting must be
received by the Company no later than June 29, 2001, and must otherwise be in
compliance with applicable laws and regulations and the Bylaws of the Company.
Also, persons named as proxies in the proxy solicited by the Board of Directors
for the 2001 Annual Meeting of Shareholders may exercise discretionary voting
authority on any proposal presented by one of the shareholders directly at that
meeting (i) if the Company did not receive notice of the proposal by September
12, 2001 or (2) if the Company receives notice of the proposal by September 12,
2001 and discloses in the proxy statement the proposal and how management
intends to vote proxies on such matter.
THE MICRON ELECTRONICS, INC. BOARD OF DIRECTORS
Dated: October 27, 2000
18
<PAGE>
Appendix A
MICRON ELECTRONICS, INC.
AUDIT COMMITTEE MISSION STATEMENT AND CHARTER
MISSION STATEMENT
-----------------
The Audit Committee serves as an independent and objective party integral
to the Board in its oversight responsibilities. Areas of responsibility include:
a) Monitoring the Company's financial reporting process and internal
control systems;
b) Reviewing and appraising the audit efforts of the Company's independent
accountants and internal auditing departments;
c) Reviewing compliance with laws and regulations under which the Company
is required to operate;
d) Providing an open avenue of communication among the independent
accountants, financial and senior management, internal auditing
department, and the Board of Directors.
CHARTER
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Committee Composition. The members of the Audit Committee shall meet the
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independence and experience requirements of the NASDAQ and the SEC. The members
of the Audit Committee shall be appointed by the Board.
Special Consultants. The Audit Committee shall have the authority to
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retain special legal, accounting or other consultants to advise the Committee.
The Audit Committee may request any officer or employee of the Company or the
Company's outside counsel or independent accountants to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
Reports. The Audit Committee shall make regular reports to the Board.
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Responsibilities. The Audit Committee shall:
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1. Review and reassess the adequacy of this Charter annually and submit it
to the Board of Directors for approval.
2. Recommend to the Board the appointment of the independent accountants,
which firm is ultimately accountable to the Audit Committee, the Board,
and the Shareholders.
3. Review fees to be paid to the independent accountants for audit
services.
4. Annually evaluate the performance of the independent accountants and,
if so determined, recommend that the Board replace the independent
accountants.
5. Review the appointment and replacement of the senior internal auditing
executive.
6. Review the significant reports to management prepared by the internal
auditing department and management's responses.
7. Meet at least annually with the Chief Financial Officer, the senior
internal auditing executive and the independent accountants in separate
executive sessions.
8. Approve the Audit Committee Report to Shareholders required by the
rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement.
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Appendix A
Responsibilities with Regard to External Audits. The Audit Committee
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shall:
1. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles and
practices as well as the adequacy of internal controls that could
significantly affect the Company's financial statements and assets.
2. Review annually with the independent accountants, significant financial
reporting issues and judgments made in connection with the preparation
of the Company's financial statements.
3. Review the Company's financial results prior to the release of
quarterly earnings.
4. Prior to the filing of reports on Form 10-Q or 10-K, discuss with
management and the independent accountants any significant trends or
developments, including:
. Company's major financial risk exposures (including but not
limited to, warranties exposure and Line of Credit compliance) and the
steps taken to monitor and control such exposures;
. Major changes to the Company's auditing and accounting principles
and practices as suggested by the independent accountants, internal
auditors, or management.
5. Periodically receive reports from the independent accountants regarding
independence, discuss such reports with the independent accountants,
and if so determined by the Audit Committee, recommend that the Board
take appropriate action to insure the independence of the independent
accountants.
6. Obtain from the independent accountants assurance that Section 10A of
the Private Securities Litigation Reform Act of 1995 has not been
implicated.
7. Discuss with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
8. Review with the independent accountants any problems or difficulties
the independent accountants may have encountered and any management
letter(s) provided by the independent accountants and the Company's
response to such letter(s). Such review should include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
(b) Any changes required in the planned scope of the internal audit.
(c) The internal audit department responsibilities, budget and
staffing.
Compliance Responsibilities. The Audit Committee shall:
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1. Obtain reports from management, the Company's senior internal auditing
executive, and the independent accountants that the Company's
subsidiaries are in conformity with applicable legal requirements and
the Company's Code of Conduct.
2. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the
Company's Code of Conduct.
3. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statements, the Company's compliance
policies and any material reports or inquiries received from regulators
or governmental agencies.
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Appendix A
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants. Except as
specifically expressed herein, it is not the duty of the Audit Committee to
conduct investigations, to resolve disagreements, if any, between management and
the independent accountants or to assure compliance with laws and regulations
and the Company's Code of Conduct.
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This Proxy is solicited on behalf of the Board of Directors.
MICRON ELECTRONICS, INC.
900 East Karcher Road, Nampa, Idaho 83687
2000 ANNUAL MEETING OF SHAREHOLDERS
November 20, 2000
The undersigned shareholder(s) of Micron Electronics, Inc., a Minnesota
corporation, hereby acknowledges receipt of the Notice of 2000 Annual Meeting of
Shareholders and the Proxy Statement, each dated October 27, 2000, and hereby
appoints Joel J. Kocher and JoAnne S. Pfeifer, and each of them, proxies and
attorneys-in-fact, with full power of substitution, on behalf and in the name of
the undersigned, to represent the undersigned at the 2000 Annual Meeting of
Shareholders of Micron Electronics, Inc., to be held on Monday, November 20,
2000, at 9:00 a.m. Mountain Time, at the Nampa Civic Center, 311 3rd Street
South, Nampa, Idaho, 83651, and at any adjournment(s) or postponement(s) thereof
(the "Annual Meeting"), and to vote, as designated on the proposals below, all
shares of Micron Electronics, Inc. Common Stock which the undersigned would be
entitled to vote, if then and there personally present, on the proposals set
forth below:
1. ELECTION OF DIRECTORS:
Steven R. Appleton Robert Lee
John B. Balousek Robert A. Lothrop
Joel J. Kocher
[_] FOR ALL [_] WITHHOLD ALL [_] FOR ALL EXCEPT
To withhold authority to vote, mark "FOR ALL EXCEPT" and write the nominee's
name on the line below:
___________________________
2. TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P. AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS FOR FISCAL YEAR 2001:
[_] FOR [_] AGAINST [_] ABSTAIN
and in their discretion, upon such other matter or matters which may properly
come before the Annual Meeting.
The shares represented by this Proxy, when properly executed, will be voted in
the manner directed herein by the undersigned shareholder(s). If no direction is
made, this Proxy will be voted FOR items 1 and 2 above. If any other matters
properly come before the Annual Meeting, the persons named in this Proxy will
vote in their discretion. In the event that any nominee is unable or declines to
serve as a director at the time of the Annual Meeting, the Proxies will be voted
for any nominee whom shall be designated by the then present Board of Directors
to fill the vacancy or for the balance of those nominees named without a
substitute.
Dated____________________________, 2000
_____________________________________________
Signature
_____________________________________________
Signature
(This Proxy should be voted, signed, and dated by the shareholder(s)
exactly as his or her name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. If shares
are held by joint tenants or as community property, all persons having an
interest therein should sign.)
