SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM__________TO__________
COMMISSION FILE NUMBER 0-22784
GATEWAY 2000, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 42-1249184
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
610 GATEWAY DRIVE
P.O. BOX 2000
NORTH SIOUX CITY, SOUTH DAKOTA 57049
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (605) 232-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ____.
As of November 7, 1996, there were 76,682,608 shares of the Common
Stock of the Company, $.01 par value per share, outstanding. As of November 7,
1996, there were no shares of the Company's Class A Common Stock, $.01 par value
per share, outstanding.
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GATEWAY 2000, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------------------
1995 1996 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 888,674 $1,202,933 $2,431,095 $3,482,398
Cost of goods sold 742,817 972,011 2,039,810 2,821,896
---------- ---------- ---------- ----------
Gross profit 145,857 230,922 391,285 660,502
Selling, general and administrative expenses 84,796 143,165 230,879 431,442
---------- ---------- ---------- ----------
Operating income 61,061 87,757 160,406 229,060
Other income, net 3,383 6,087 12,559 19,086
---------- ---------- ---------- ----------
Income before income taxes 64,444 93,844 172,965 248,146
Provision for income taxes 23,518 33,148 58,808 85,610
---------- ---------- ---------- ----------
Net income $ 40,926 $ 60,696 $ 114,157 $ 162,536
========== ========== ========== ==========
Share and per share information:
Net income per share $ 0.52 $ 0.78 $ 1.45 $ 2.08
========== ========== ========== ==========
Weighted average shares and share
equivalents outstanding 79,165 78,138 78,943 77,972
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
GATEWAY 2000, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(in thousands, except share and per share amounts)
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 166,397 $ 401,126
Marketable securities 3,032 --
Accounts receivable, net 405,283 401,581
Inventory 224,916 210,598
Deferred income taxes 40,908 38,139
Other 25,653 30,645
----------- -----------
Total current assets 866,189 1,082,089
Property, plant and equipment, net 170,263 235,677
Software costs, net 58,477 73,095
Other assets 29,082 25,701
----------- -----------
$ 1,124,011 $ 1,416,562
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term obligations $ 13,564 $ 8,936
Accounts payable 235,064 334,187
Accrued liabilities 108,976 144,412
Accrued royalties payable 123,385 114,589
Customer prepayments 16,397 9,256
Income taxes payable 27,905 11,190
----------- -----------
Total current liabilities 525,291 622,570
Long-term obligations, net of current maturities 10,805 12,374
Deferred income taxes 6,744 11,560
Other liabilities 25,652 45,069
----------- -----------
Total liabilities 568,492 691,573
----------- -----------
Contingencies (Note 4)
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; none
issued and outstanding -- --
Class A Common Stock, nonvoting, $.01 par value, 1,000,000 shares
authorized; none issued and outstanding -- --
Common Stock, $.01 par value, 220,000,000 shares authorized;
74,552,864 shares and 76,670,133 shares issued and outstanding,
respectively 746 767
Additional paid-in capital 280,447 286,838
Cumulative translation adjustment 324 815
Unrealized loss on marketable securities (31) --
Retained earnings 274,033 436,569
----------- -----------
Total stockholders' equity 555,519 724,989
----------- -----------
$ 1,124,011 $ 1,416,562
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
<CAPTION>
GATEWAY 2000, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(in thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 114,157 $ 162,536
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 24,083 41,844
Provision for uncollectible accounts receivable 4,480 13,760
Deferred income taxes (24) 6,148
Other, net (302) 2,034
Changes in operating assets and liabilities:
Accounts receivable (44,160) (10,058)
Inventory (129,140) (1,476)
Other current assets (46,405) (4,928)
Accounts payable 40,865 99,123
Accrued liabilities 22,011 11,410
Accrued royalties 13,491 (8,796)
Customer prepayments (6,376) (7,141)
Income taxes payable 1,661 12,288
Other liabilities 9,791 21,335
--------- ---------
Net cash provided by operating activities 4,132 338,079
--------- ---------
Cash flows from investing activities:
Capital expenditures (38,316) (79,564)
Software costs (24,923) (22,615)
Purchases of available-for-sale securities (10,679) --
Purchases of held-to-maturity securities (1,685) --
Proceeds from sale of available-for-sale securities 22,605 --
Proceeds from maturities of held-to-maturity securities 5,000 --
Acquisitions, net of cash acquired (3,620) --
Payment received on note -- 5,000
Other, net (9,256) (4,739)
--------- ---------
Net cash used in investing activities (60,874) (101,918)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable 5,000 10,297
Principal payments on long-term obligations and notes payable (13,090) (12,543)
Stock options exercised 751 1,780
--------- ---------
Net cash used in financing activities (7,339) (466)
Foreign exchange effect on cash and cash equivalents (361) (966)
--------- ---------
Net increase (decrease) in cash and cash equivalents (64,442) 234,729
Cash and cash equivalents, beginning of period 214,021 166,397
--------- ---------
Cash and cash equivalents, end of period $ 149,579 $ 401,126
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
1. GENERAL:
The accompanying unaudited consolidated financial statements of
Gateway 2000, Inc. (the "Company") as of September 30, 1996 have been prepared
on the same basis as the audited consolidated financial statements for the year
ended December 31, 1995 and, in the opinion of management, reflect all
adjustments necessary to fairly state the consolidated financial position, and
the consolidated results of operations and cash flows for the interim period.
All adjustments are of a normal, recurring nature. The results for the interim
period are not necessarily indicative of results to be expected for any other
interim period or the entire year. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 1995, which are included in the
Company's 1995 Annual Report to the Securities and Exchange Commission on Form
10-K. The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
2. SHARE AND PER SHARE INFORMATION
Net income per share has been computed using net income for the
three and nine months ended September 30, 1995 and 1996 and the weighted average
number of common shares and common share equivalents (if dilutive) outstanding
during the period. Common share equivalents considered outstanding relate to
stock options and have been calculated using the treasury stock method for all
periods presented.
3. SELECTED BALANCE SHEET INFORMATION:
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(Unaudited)
(In thousands)
Marketable securities:
Available-for-sale $ 3,032 $ --
========= =========
Accounts receivable, net:
Accounts receivable $ 416,837 $ 420,141
Less allowance for uncollectible accounts (11,554) (18,560)
--------- ---------
$ 405,283 $ 401,581
========= =========
Inventory:
Components and subassemblies $ 221,601 $ 199,635
Finished goods 3,315 10,963
--------- ---------
$ 224,916 $ 210,598
========= =========
4. CONTINGENCIES
Three virtually identical class action lawsuits were filed against the
Company and its directors by certain stockholders on June 27, June 28 and July
1, 1994 in the U.S. District Court for the District of South Dakota. Also
originally named as defendants in the cases were Goldman, Sachs & Co. and
PaineWebber Incorporated, which acted as the lead underwriters in the Company's
initial public offering of its Common Stock on December 14, 1993 (the "Initial
Public Offering"). The plaintiffs added Norman W. Waitt, Jr. as a defendant on
December 12, 1994. On January 12, 1995, the plaintiffs and underwriter
defendants agreed to dismiss plaintiffs' claims against such defendants without
prejudice and to toll the statute of limitations with respect to plaintiffs'
claims. In July 1995, one of the lawsuits was voluntarily dismissed by the
plaintiff without prejudice. In substance, the lawsuits alleged that the
defendants violated federal securities laws by causing or permitting the Company
to issue false and misleading statements and false financial statements during
the period December 7, 1993 through June 23, 1994 (the "Complaint Period"). The
plaintiffs purportedly brought the actions on behalf of all persons who
purchased or otherwise acquired the Common Stock during the Complaint Period.
The remaining lawsuits were dismissed with prejudice against all the remaining
defendants on August 18, 1995. Thereafter, plaintiffs filed a motion for
reconsideration and for leave to file an amended complaint, both of which were
denied on January 19, 1996. On February 14, 1996, plaintiffs filed their notice
of appeal to the United States Court of Appeals for the Eighth Circuit and
briefing of the appeal is complete by both parties. Nevertheless, the Company
believes this appeal is without merit and shall continue to defend itself and
its directors vigorously.
For a description of the factors that may affect future results see
"Financial Information-Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future
Results-Potential Liability for Sales, Use or Income Taxes" on page 11 of this
Report, "Litigation" in the same section on page 11 of this Report,
"Infringement of Intellectual Property Rights" in the same section on page 11 of
this Report and "Other Information-Legal Proceedings" on page 12 of this Report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain data
derived from the Company's consolidated statements of operations, expressed as a
percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1995 1996 1995 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 83.6% 80.8% 83.9% 81.0%
------ ------ ------ ------
Gross profit 16.4% 19.2% 16.1% 19.0%
Selling, general and administrative expenses 9.5% 11.9% 9.5% 12.4%
------ ------ ------ ------
Operating income 6.9% 7.3% 6.6% 6.6%
Other income, net 0.4% 0.5% 0.5% 0.5%
------ ------ ------ ------
Income before income taxes 7.3% 7.8% 7.1% 7.1%
Provision for income taxes 2.7% 2.8% 2.4% 2.4%
------ ------ ------ ------
Net income 4.6% 5.0% 4.7% 4.7%
====== ====== ====== ======
</TABLE>
Sales. Sales increased 35% in the third quarter of 1996 to $1.20
billion from $889 million in the third quarter of 1995. For the nine months
ended September 30 sales increased 43% to $3.48 billion from $2.43 billion in
the comparable period of 1995. Sales in the third quarter of 1996 increased 5.8%
from sales in the second quarter of 1996. The increase in sales for the third
quarter and first nine months of 1996 over the comparable periods of 1995
resulted from continued demand growth in the Americas and European markets,
expansion into the Japanese and Australian markets, and accelerated growth in
sales of the Company's portable products.
Unit shipments in the quarter increased 46% to approximately 474,000
from 325,000 in the third quarter of 1995. For the nine months ended September
30, unit shipments increased 43% to approximately 1,298,000 from approximately
909,000 in the first nine months of 1995. Unit shipments for the third quarter
increased 11.9% over unit shipments in the second quarter of 1996. Unit
shipments in the Company's America's region grew 40% over the third quarter of
1995 and increased 11.8% over the second quarter of 1996. In the Company's
European region, unit shipments in the quarter grew 41% over the third quarter
of 1995 and 10.1% over the second quarter of 1996. Unit shipments in the third
quarter in the Company's Asia-Pacific region grew 17.8% over the second quarter
of 1996. Comparison of the results of the Asia-Pacific region to the prior year
is not possible since the results of operations were not reflected until the
fourth quarter of 1995.
For the first nine months of 1996 weighted average unit prices were
essentially the same as prices in the first nine months of 1995. Prices in the
third quarter of 1996 however were 7.3% lower than prices in the third quarter
of 1995 and 5.4% lower than prices in the second quarter of 1996. Generally unit
prices for specific PC products have decreased over time reflecting the effects
of competition and reduced component costs associated with advances in
technology. The Company has generally offset such decreasing unit prices by
adding or improving product features and by introducing new products based on
newer technology at higher unit prices. In 1995, component costs did not
experience normal declines and when new technology was introduced, prices
gradually increased throughout the year. In 1996 component prices again began to
decline and in particular significant cost declines were experienced in Dynamic
Random Access Memory (DRAM) prices. These declines in component costs have been
passed on to customers through price decreases. Average unit price declines in
the Company's international operations have been more significant than the
declines experienced in the Company's America's region resulting in revenue
growth at a rate less than the growth in unit shipments.
Revenues in the Americas region for the quarter increased to $1.02
billion, an increase of 30% over the $790.6 million recorded in the third
quarter of 1995 and an increase of 6.6% over the second quarter. For the nine
month period ended September 30, revenues in the Americas grew 37% over the 1995
levels to $2.94 billion. Net sales from international operations in the third
quarter of 1996 increased 82% to $178.4 million from $98.1 million in the third
quarter of 1995, and increased 1.1% over the second quarter. For the first nine
months of 1996, international sales increased 95% to $544.7 million from $279.8
million in the first nine months of 1995. Revenues in the quarter from the
Company's European region were $115.5 million, an increase of approximately 18%
from the third quarter last year and a decrease of approximately 1% from the
second quarter of this year, which is generally the seasonally stronger quarter
in the region. Revenues for the first nine months of 1996 in the Company's
European region were $381.1 million, an increase of 36% over the comparable
period of 1995. The results of the Company's Asia Pacific region were $62.8
million in the quarter, an increase of 6.0% over the second quarter of 1996,
and totaled $163.7 million for the first nine months of this year.
Sales of the Company's Solo line of portable products continued to
accelerate during the quarter. Portable products now account for slightly more
than 10% of total company revenues, an historical high. Shipments of Pentium Pro
products also accounted for approximately 10% of company revenue in the quarter,
a significant increase over the 3% rate in the second quarter.
Gross Profit. Gross profit in the third quarter and first nine months
of 1996 increased 58% and 69% respectively, over the comparable periods of 1995.
As a percentage of sales, gross profit for the third quarter and first nine
months of 1996 increased to 19.2% and 19.0% from 16.4% and 16.1% for the
comparable periods of 1995.
The improvement in gross profit during 1996 was achieved, despite
continual competitive pressure on PC prices, principally due to improvements in
meeting product sales mix forecasts associated with the introduction of new
products, a decrease in Direct Random Access Memory (DRAM) prices, and decreases
in aggregate royalty costs per unit. Margins in the third quarter as a percent
to sales increased to 19.2% from 18.5% in the second quarter generally due to
the timing of component cost decreases being passed on to customers through
price decreases.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the third quarter and first nine months of
1996 increased approximately 69% and 87%, respectively, over the comparable
periods of 1995. As a percentage of sales, in the third quarter and first nine
months of 1996, these expenses increased to approximately 11.9% and 12.4%,
respectively, from 9.5% in the comparable periods of 1995. Significant factors
contributing to those increases were higher personnel costs, additional overhead
expenses associated with the Japanese and Australian operations, and additional
marketing programs.
Personnel-related costs increased faster than the growth of sales in
the third quarter and first nine months of 1996 over the comparable periods of
1995 as a result of increased expenditures to expand customer support capacity
and general building of the Company's internal infrastructure and systems. The
Company expects to continue to make the necessary expenditures and
infrastructure investments to manage the growth of the Company.
The Company began operations in Japan and Australia in the third
quarter of 1995. Expenses have been incurred in these operations at a rate
intended to generate and support higher levels of revenue. As a result, SG&A
expenses have continued to be a greater percentage of net sales than in the
Americas operations.
Marketing expenses increased as a percentage of sales in the third
quarter and first nine months of 1996 compared to the third quarter and first
nine months of 1995. The increase results from increased marketing efforts
directed at targeted family and major account markets, marketing efforts to
support international expansion and a national consumer-oriented television
advertising campaign which began in the fourth quarter of 1995.
SG&A in the third quarter of 1996 increased to $143.2 million from
$140.1 million in the second quarter of 1996. The increase is primarily
attributable to staff cost decreases in the quarter being more than offset by
increases in depreciation, bad debts, freight and marketing expenses. As a
percent to sales, SG&A decreased to 11.9% in the third quarter from 12.3% in the
second quarter of 1996. The decrease as a percent to sales reflects seasonal
sales growth and increasing leverage of the various systems and infrastructure
investments made over the past year.
Operating Income. Due to the factors discussed above, operating income
in the third quarter of 1996 increased by 44% to $87.8 million from $61.0
million in the third quarter of 1995. Operating income for the nine months ended
September 30, 1996 increased 43% to $229.1 million from $160.4 million in the
first nine months of 1995. As a percentage of sales, operating income for the
quarter increased to 7.3% from 6.9% in the third quarter of 1995, and for the
nine month period, operating income of 6.6% was essentially the same as the
comparable period in 1995.
Other Income, Net. Other income, net includes other income net of
expenses, such as interest income and expense, discounts on trade payables,
lease financing commissions, referral fees for on-line services and foreign
exchange transaction gains and losses. Other income, net increased to $6.1
million in the third quarter of 1996 from $3.4 million in the third quarter of
1995. For the nine months ended September 30, 1996, Other income, net increased
to $19.1 million from $12.6 million during the first nine months of 1995. The
principal cause of these increases was the generation of additional interest
income as a result of the availability of additional cash and marketable
securities compared to 1995.
Income Taxes. The Company's effective tax rate increased to 35.3% for
the three months ended September 30, bringing the tax rate for the nine month
period to 34.5% from the 34.0% effective tax rate recorded in the first two
quarters of 1996. The increase in the tax rate reflects shifts in the geographic
distribution of the earnings of the company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating and capital expenditure
requirements to date principally through cash flow from its operations. At
September 30, 1996 the Company had cash and cash equivalents of $401.1 million,
and an unsecured committed credit facility with certain banks of $225 million,
consisting of a revolving line of credit facility and a sub-facility for letters
of credit. At September 30, 1996, no amounts were outstanding under the
revolving line of credit. Approximately $2.5 million was committed to support
outstanding standby letters of credit. Management believes the Company's current
sources of working capital, including amounts available under existing credit
facilities, will provide adequate flexibility for the Company's financial needs
for the foreseeable future.
The Company generated $338.1 million of cash from operations during the
nine months ended September 30, 1996, including $218.1 million of net income
adjusted for non-cash charges. Working capital management has limited inventory
and accounts receivable growth to only $11.5 million through the first nine
months of 1996, while increases in accounts payable, income taxes payable and
other liabilities generated an additional $128.2 million in cash. The increase
in accounts payable and other liabilities has resulted from overall growth of
the business and improved management of vendor payment terms. The Company used
approximately $106.9 million in cash for investing activities, principally as a
result of the Company's continued investment in facilities and systems. The
Company used approximately $.5 million in cash from financing activities during
the nine months ended September 30, 1996, principally from the repayment of a
term note and scheduled payments on long-term obligations, net of proceeds from
short-term borrowings.
At September 30, 1996 the Company had long-term indebtedness of
approximately $21.3 million, inclusive of capital lease obligations, to various
parties. These obligations relate primarily to the Company's expansion of
international operations and its investments in equipment and facilities.
Borrowings, exclusive of capital lease obligations, bear fixed and variable
rates of interest currently ranging from interest free (for certain incentive
funds from the Industrial Development Authority of the City of Hampton,
Virginia) to 4.9% and have varying maturities through 1998. The Company's
capital lease obligations relate principally to its computer and telephone
system equipment.
The Company anticipates that it will retain all earnings in the
foreseeable future for development of its business and will not distribute
earnings to its stockholders as dividends.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Report includes forward-looking statements based on current
management expectations. Factors that could cause future results to differ from
these expectations include the following: general economic conditions; growth in
the personal computer industry; competitive factors and pricing pressures;
component supply shortages; and inventory risks due to shifts in market demand.
These and additional factors are described in further detail below. Because of
all the possible factors affecting the Company's operating results, past
financial performance should not be considered a reliable indicator of future
performance.
Potential for Fluctuating Operating Results; Seasonality. Historically,
the PC industry has been subject to seasonality (such as third and fourth
quarter back-to-school and holiday sales) and to significant quarterly and
annual fluctuations in operating results. The Company's operating results are
also subject to fluctuations resulting from a wide variety of factors affecting
the Company and its competitors, including new product developments or
introductions, availability of components, changes in product mix and pricing,
product reviews and media coverage. The Company's business is also sensitive to
the spending patterns of its customers, which in turn are subject to prevailing
economic conditions.
Management of Growth. From the Company's inception, its sales have
grown rapidly. Although the Company attempts to forecast growth accurately, no
assurance can be given that the Company will do so. The Company has experienced,
and may continue to experience, problems with respect to the size of its work
force and production facilities and the adequacy of its management information
and order systems, purchasing and inventory controls, and the forecasting of
component part needs. These problems can result in high backlog of product
orders, delays in customer support response times and increased expense levels.
There can be no assurance that the Company will be able to anticipate and to
provide timely and sufficient resources to maintain the levels of product
delivery and customer support that it has provided in the past or that such
maintenance will not result in a significant increase in personnel and other
expenses. A decline in the quality of the Company's customer support or delays
in the delivery of the Company's products could materially and adversely affect
the Company's business, consolidated financial position, results of operations
or cash flows. Moreover, there can be no assurance that the Company's production
facilities or management information systems will successfully meet its future
requirements.
Reliance On Key Suppliers. Although the Company designs and contracts
for the manufacture of components according to the Company's specifications, the
Company does not itself manufacture any components used in its PCs. The Company
requires a high volume of quality components for the manufacture of its
products. Although the Company attempts to use parts and components available
from, and cross-compatible between, multiple suppliers, the Company considers
single-source supplier relationships to be advantageous in some circumstances.
For example, some components are currently available only from single-source
suppliers, including certain microprocessors supplied by Intel Corporation.
However, the Company does not have a long-term contract with Intel or most of
its other suppliers. In addition, the computer industry periodically experiences
shortages of certain components, such as memory, CD-ROM drives or video cards.
An industry shortage or other supply constraint of any key component could
affect the Company's ability to deliver products on schedule or to realize
expected gross margins.
Highly Competitive Industry. In recent years the Company and many of
its competitors regularly have lowered prices, and the Company expects these
pricing pressures to continue. If these pricing pressures are not mitigated by
cost reductions or changes in product mix, the Company's profits could be
substantially reduced. The Company competes with other PC direct marketers, and
it also competes directly and indirectly with PC manufacturers that market their
products in distribution channels in which the Company generally has not
participated. Some of these competitors have significantly greater financial,
marketing, manufacturing or technological resources than the Company and,
consequently, may offer lower PC prices than the Company.
Short Product Life Cycles. The PC industry is characterized by short
product life cycles resulting from rapid changes in technology and consumer
preferences and declining product prices. There can be no assurance that new
products or features offered by the Company will be successful, that the
introduction of new products or features by the Company or its competitors will
not materially and adversely affect the sale of the Company's existing products
or will not result in reserves or write-downs associated with excess inventory,
or that the Company will be able to adapt to future changes in the PC industry.
The Company's in-house engineering personnel work closely with PC component
suppliers and other technology developers to evaluate the latest developments in
PC-related technology. There can be no assurance that the Company will continue
to have access to new technology or will be successful in incorporating such new
technology in its products or features in a timely manner.
Expansion into International Markets. There can be no assurance that
the Company's expansion into international markets will be successful. In
addition to the challenges to the Company of managing potential growth of its
international operations, international expansion involves additional business
risks such as foreign currency fluctuation, government regulation, liability for
foreign taxes and more complex product sales, delivery and support logistics.
Failure of the Company to achieve or maintain successful international
operations could materially and adversely affect the Company's business,
consolidated financial position, results of operations or cash flows.
Dependence on Key Personnel. The Company's success depends largely on
the efforts and abilities of certain key management employees, particularly
those of Theodore W. ("Ted") Waitt, Chairman and Chief Executive Officer and a
founder of the Company. The Company has not entered into an employment agreement
with Ted Waitt. The loss of Ted Waitt's services could materially and adversely
affect the Company. The success of the Company will also be dependent, in part,
on the ability to attract and retain additional key management personnel. There
is competition for such personnel in the computer industry, and an inability to
attract and retain sufficient additional key employees could also have a
material adverse effect on the Company.
Potential Liability for Sales, Use or Income Taxes. The Company is
party to agreements with numerous state tax authorities pursuant to which it
collects and remits applicable sales or use taxes in such states. The Company
entered into these agreements in response to inquiries of taxing authorities in
those states concerning alleged Company contacts with such states and whether
such alleged contacts required the collection of sales and use taxes from
customers and/or the payment of income tax in those states. These agreements
generally limit the liability of the Company for non-collection of sales taxes
prior to such agreements' effective dates and limit the duration of the
Company's responsibility to collect such taxes to the next several years. These
agreements do not address income taxes. Taxing authorities in other states have
made similar inquiries or asserted similar claims concerning the Company's
alleged contacts with those states and in the future could make specific
assessments. The Company has not collected or remitted any sales or use taxes in
such states for any prior period, nor has it established significant reserves
for the payment of such taxes. There can be no assurance that the amount of any
sales or use taxes the Company might ultimately be required to pay for prior
periods would not materially and adversely affect the Company's business,
consolidated financial position, results of operations or cash flows.
The Company currently pays state income taxes in Kansas, Kentucky,
Missouri, Virginia, and for 1995 only, in Iowa. The Company has not paid income
taxes in other states, nor has it established significant reserves for the
payment of such taxes. There can be no assurance that the amount of any income
tax the Company might ultimately be required to pay for prior periods would not
materially and adversely affect the Company's business, consolidated financial
position, results of operations or cash flows. The Company may also be liable
for income taxes incurred by the Original Stockholders resulting from the
Company's operations during the time when the Company elected to be treated as
an S Corporation for federal income tax purposes.
Infringement of Intellectual Property Rights. The Company currently has
several infringement claims pending against it. No assurance can be made that
any such claims, singularly or in the aggregate, would not materially and
adversely affect the Company's business, consolidated financial position,
results of operations or cash flows. The Company evaluates all such claims
against it, and, when appropriate, seeks a license to use the protected
technology in its products. If the Company or its suppliers were unable to
obtain licenses necessary to use the protected technology in the Company's
products on commercially reasonable terms, the Company may be forced to market
products without certain technological features. The Company could also incur
substantial costs to redesign its products around other parties' protected
technology or to defend patent or copyright infringement actions against the
Company. If any of the Company's products were found to infringe protected
technology, the Company could also be enjoined from further use of that
technology in its products and could be required to pay damages. The Company's
inability to obtain licenses necessary to use certain technology, its inability
to obtain such licenses on competitive terms or a finding of infringement
against the Company could materially and adversely affect the Company's
business, consolidated financial position, results of operations or cash flows.
Government Regulation. The Company's PCs must meet standards
established by the Federal Communications Commission ("FCC"), and similar
agencies in foreign countries, for radio frequency emissions and must receive
appropriate certification prior to being marketed. In addition, the Company's
advertising, shipping, exporting and other operations are subject to regulations
of the Federal Trade Commission and the Departments of Commerce and State in the
U.S., states' attorney general's offices, and similar state agencies and
agencies in foreign jurisdictions. Even inadvertent or sporadic failure to
comply with government regulations can result in fines, penalties and forced
rebates levied against the Company which could materially and adversely affect
the Company's business, consolidated financial position, results of operations
or cash flows. A delay or inability to obtain FCC certification, for example,
could delay or prevent the Company from introducing new products or features.
Failure to comply with export regulations could result in special restrictions
on the Company's ability to ship products overseas. While the Company has not
been subject to any significant enforcement penalties to date, and while the
Company continues to use its best efforts to comply with all applicable U.S. and
foreign governmental regulations, the Company has matters pending before several
regulatory agencies and, accordingly, there can be no assurance that enforcement
penalties will not be levied against the Company in the future.
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In addition to certain actions pending against the Company as disclosed
in the Company's Quarterly Report on Form 10Q for the quarterly period ending
June 30, 1996, two consumer class actions have recently been filed against the
Company challenging its advertising and marketing practices. On August 19, 1996,
Sheller, Ludwig & Badey v. Gateway 2000, Inc. was filed in the Philadelphia
County Court of Common Pleas alleging misstatements regarding the upgradeability
of certain 486 computer systems and the longevity of certain computer monitors,
seeking damages under state contract and tort theories. Also, on August 19,
1996, Carol Levy v. Gateway 2000, Inc. and Does 1-50 was filed in San Francisco
County Superior Court. The plaintiff alleges misstatements regarding battery
life in certain portable computers in violation of state consumer protection
laws. The Company intends to contest vigorously the allegations raised in the
two complaints. As these actions are at a preliminary stage and no discovery has
been conducted in either of them, it is too early to evaluate the likelihood of
the plaintiffs' success on the merits of their claims or the amount of any loss
that may be realized in the event of an unfavorable outcome in either of these
actions. There can be no assurance that an adverse determination in any of the
matters pending against the Company would not have a material adverse effect on
the Company's financial condition or results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
EXHIBIT DESCRIPTION OF EXHIBITS
NO.
---
10.1 Amendment No. 3 to the License Agreement dated May 1, 1995
between Gateway 2000, Inc. and Microsoft Corporation.
[Confidential treatment requested as to certain portions which
are indicated by a legend and filed separately with the
Securities and Exchange Commission with an Application for
Confidential Treatment pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended.]
10.2 Amendment No. 4 to the License Agreement dated May 1, 1995
between Gateway 2000, Inc. and Microsoft Corporation.
[Confidential treatment requested as to certain portions which
are indicated by a legend and filed separately with the
Securities and Exchange Commission with an Application for
Confidential Treatment pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended.]
10.3 Amendment No. 5 to the License Agreement dated May 1, 1995
between Gateway 2000, Inc. and Microsoft Corporation.
[Confidential treatment requested as to certain portions which
are indicated by a legend and filed separately with the
Securities and Exchange Commission with an Application for
Confidential Treatment pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended.]
10.4 Amendment No. 4 to the License Agreement dated June 1, 1994
between Gateway 2000, Inc. and Microsoft Corporation.
[Confidential treatment requested as to certain portions
which are indicated by a legend and filed separately with the
Securities and Exchange Commission with an Application for
Confidential Treatment pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended.]
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GATEWAY 2000, INC.
Date: November 13, 1996 By: /s/ David J. McKittrick
----------------------------------------------
David J. McKittrick
Senior Vice President, Chief Financial Officer
and Treasurer (authorized officer and chief
accounting officer)
The following trademarks of other companies appear in this Report: Intel,
Microsoft, Windows 95(R) and Pentium. These and any other product or brand
names contained herein are trademarks or registered trademarks of their
respective owners.
EXHIBIT 10.1
AMENDMENT NO. 3
TO THE LICENSE AGREEMENT
BETWEEN GATEWAY 2000 AND MICROSOFT
CORPORATION
DATED [*] CONTRACT NO. [*]
This Amendment ("Amendment") to the License Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") and GATEWAY 2000 ("GATEWAY") dated [*] is
made and entered into this [*].
1. The attached Exhibit C5 shall be added to the Agreement.
2. Except as provided herein, all terms of the Agreement shall remain
in full force and effect. In the event of inconsistencies between the Agreement
and this Amendment, the terms and conditions of the Amendment shall be
controlling.
This Amendment shall be null and void unless signed by GATEWAY and returned to
MS [*] by GATEWAY.
IN WITNESS WHEREOF, the parties have executed this Amendment to the
Agreement as of the date set forth above. All signed copies of this Amendment to
the Agreement shall be deemed originals. This Amendment does not constitute an
offer by MS. This Amendment shall be effective upon execution on behalf of
GATEWAY and MS by their duly authorized representantives.
MICROSOFT CORPORATION GATEWAY 2000, INC.
/s/ Ronald Hosogi /s/William M. Elliot
- ----------------- -------------------------
By By
Ronald Hosogi William M. Elliot
- ----------------- -------------------------
Name (Print) Name (Print)
Senior Vice President and
Director, OEM General Counsel
- ----------------- -------------------------
Title Title
[*] [*]
- ----------------- -------------------------
Date Date
[*]
<TABLE>
<CAPTION>
ADDITIONAL SYSTEMS PRODUCTS
---------------------------
- ------------------------------------------------------------------------------------------------------------
Product Name and Language Applicable Per Per Localization Added by
Version Version(s) Additional System Copy Additional Amendment
** Provisions Royalty * Royalty * Royalty Number
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Plus! Version 1.0 EN,FF, (a) (b) [*] [*] [*] 3
for D,DA,
Windows(R) 95 DU,EE,
J,SW,PE
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*A Product is not licensed hereunder unless royalty rate(s) are indicated in the
Product table and the Product is indicated as licensed for one or more Customer
Systems in the Customer System table of this Exhibit C.
**Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE = Cyrillic
Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA = Danish, DU =
Dutch, E = Spanish, EE = Eastern and Central European, EN = USA English, F =
French, FF = France's French, FI = Finnish, HAN = Hangeul, HB = Hebrew, HUN =
Hungarian, I = Italian, J = Japanese, N = Norwegian, P = Portuguese, PE = Pan
European English, POL = Polish, PRC = PRC Simplified Chinese, RU = Russian, SL =
Slovenian, SW = Swedish, TH = Thai, TR = Turkish, Z = International English. If
COMPANY is licensed for the EN version of Product and if a Localization
Additional Royalty is specified in the Product table above, then in addition to
the language versions specified in the Product table above, COMPANY may receive
Product Deliverables for the licensed Product in available language versions
listed in the Language Key (except CH, HAN, J, and PRC which may only be added
by amendment) by sending a written request to the attention of OEM Accounting
Services at the address listed in Exhibit N for royalty reports.
ADDITIONAL PROVISIONS KEY
(a) This Product is designed for use with Windows 95 and may not function
properly with other operating system products.
(b) The royalty rate(s) specified above require pre-installation of the Product
on each Customer System distributed with the Product.
CUSTOMER SYSTEMS
COMPANY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user; (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, and a case. Each listed Customer System must have
a unique model line name, model name, or model number which COMPANY uses both
internally (in COMPANY's books and records) and externally (on the Customer
System case and packaging). For each Product which COMPANY chooses to license
for distribution with the listed Customer System, the letter "s" or "c" in the
relevant box indicates whether COMPANY is licensing the Product on a "per
system" or "per copy" basis, respectively. New models may be added by agreement
of the parties.
At COMPANY's option, for purposes of administrative convenience, COMPANY may
designate models by model line or series, (e.g., "Jaguar model line", "Jaguar
Pro series", "Jaguar Pro 750 model line", "Jaguar Pro 950 series", etc.).
Customer Systems defined by model line or series shall include all present
models which include the designated model line or series name, (e.g., "Jaguar
Pro model line" includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar
series" includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar
Pro 950 series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that COMPANY designates models by model line or series in this
Exhibit C, then COMPANY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
COMPANY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which COMPANY has designated previously as a Customer System.
<TABLE>
<CAPTION>
PRODUCT NUMBER KEY: 1=Plus! 1.0
ROYALTY BASIS KEY: C = per copy, S = per system; if Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
- ----------------------------------------------------------------------------------------------
Model Name or Model Number Processor Product Number
Type 1 2 3 4 5 6 7 8
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Destination Pentium S
- ----------------------------------------------------------------------------------------------
Family PCs and Professional 486,
PCs shipped Pentium S
in the European Community
- ----------------------------------------------------------------------------------------------
</TABLE>
COMPANY hereby represents and warrants that the names and numbers indicated in
the Model Name or Model Number column in the table above accurately denote the
actual designation used by the COMPANY to identify the listed models (on the
Customer System case and in COMPANY's internal books and records).
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NUMBER 4
Amendment Date: [*]
to MICROSOFT OEM LICENSE AGREEMENT FOR DESKTOP AND PORTABLE OPERATING SYSTEMS
between MICROSOFT CORPORATION, a Washington, U.S.A. Corporation
and GATEWAY 2000, INC., a Corporation of Delaware
Agreement Effective Date [*]
MICROSOFT LICENSE [*]
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "Agreement") are hereby amended by this instrument (hereinafter
the "Amendment"), as follows:
1. New Section 1(j) is hereby added to the Agreement and shall read as
follows:
"(j) "Supplement" shall mean a release of a supplement to, or replacement
of, any portion of Product as MS may provide to GATEWAY from time to
time."
2. The following is hereby added to the end of Section 2(a) of the Agreement:
"With respect to Supplements, MS may also grant to GATEWAY one or more
non-exclusive, limited additional rights, including without limitation,
those set forth in Exhibit F hereto, in a numbered or series written
"Supplement Addendum" for such Supplement. If GATEWAY decides to exercise
any such additional rights granted for a particular Supplement, GATEWAY
agrees to fully comply with all of the terms and conditions of the
applicable Supplement Addendum, regardless of whether the particular terms
of the Supplement Addendum are described in Exhibit F."
3. Section 2(c) of the Agreement is hereby amended and as amended shall read
as follows:
"(c) GATEWAY's license shall extend to Update Releases, Version Releases,
and Supplements. GATEWAY's license shall not extend to Product Releases."
4. New Section 3(g) is hereby added to the Agreement and shall read as
follows:
"(g) If any Exhibit C to the Agreement does not contain a "Per System
Royalty Calculation" Section or "Per Copy Royalty Calculation" Section,
then the following shall apply to royalties for Products licensed under
such Exhibit(s) C:
(i) For Product(s) specified in the applicable Exhibit C as licensed
on a "per system" basis, GATEWAY agrees to pay MS the royalty set forth in
the applicable Exhibit C for each Customer System distributed or placed in
use by or for GATEWAY. For Product(s) specified in the applicable Exhibit
C as licensed on a "per copy" basis, GATEWAY agrees to pay MS the royalty
rates set forth in the applicable Exhibit C for each unit of Product
licensed or distributed by GATEWAY.
(ii) If [*], GATEWAY's reported shipments of the applicable Customer
Systems (for Product licensed on a per system basis) or Product (for Product
licensed on a per copy basis), respectively, are [*] below GATEWAY's estimated
monthly volume specified in the Product table in the applicable Exhibit C,
GATEWAY and MS shall negotiate an increase in the royalty rate(s) to reflect
GATEWAY's lower shipment volumes. If, for any reason, MS and GATEWAY are unable
to agree upon new royalty rate(s) [*] after the date GATEWAY's royalty report is
due, [*] GATEWAY's royalty rate(s) for each Product included in the volume
estimate accompanying the royalty rate shall increase[*]. Such increased royalty
rate(s) shall be in effect for the remainder of the term of the Agreement
commencing with the monthly reporting period following [*]. Provided, however,
that if GATEWAY's reported monthly volume returns to or exceeds the original
estimate of monthly volume thereafter, GATEWAY's royalty rate(s) shall be
restored to the rate(s) specified in the Product table in the applicable Exhibit
C commencing with the monthly reporting period following [*].
(iii) In addition, GATEWAY agrees to pay MS the Localization
Additional Royalty specified in Exhibit(s) C for each unit of non-US
English version of Product distributed or placed in use by GATEWAY.
(iv) Where multiple "Releases" (i.e., Update Releases, Version
Releases or Product Releases), language versions, or media versions (e.g.,
MS-DOS and MS-DOS ROM) of a Product are licensed for the same Customer
Systems, GATEWAY may distribute [*] Product software in addition [*]
Preinstalled Product Software in one language and Release for use on each
such Customer System. GATEWAY shall pay MS the royalty applicable to the
Release and language version shipped. Any Customer System licensed on a
per system basis for [*] Update Release or Version Release of a Product,
but distributed without Product, shall bear the base royalty for the most
recent Release of Product licensed."
5. Section 6(d) of the Agreement is hereby amended and as amended shall read
as follows:
"(d) (i) GATEWAY agrees to provide end user support for the Product(s)
under terms and conditions as least as favorable to the end user as the
terms under which GATEWAY provides support for GATEWAY's Customer Systems
to end users generally, but which in no event shall be less than
commercially reasonable end user support. GATEWAY further agrees to
provide end users with telephone customer support and to prominently
display its customer support telephone number for such assistance in or on
Customer System documentation.
(ii) GATEWAY shall not advertise or otherwise market the products as
separate items, but shall clearly indicate in all marketing materials
relating to the Products and Customer System(s) that the Products are
available only as part of a Customer System. GATEWAY shall not publish or
otherwise mark a separate price for the Product(s)."
"(iii) GATEWAY agrees that it shall not distribute the Product in
encrypted form, except as otherwise specifically provided in this
Agreement. MS will advise GATEWAY with prior written notice of any
Product(s) that are in encrypted form. MS will advise GATEWAY if any
Product may be distributed in encrypted form.
6. The attached Exhibit C is hereby added and shall supersede the existing
Exhibit C of the Agreement [*].
7. The attached Attachment 1 to Exhibit C is hereby added to the Agreement.
8. The attached Exhibit D is hereby added to the Agreement. Exhibit D shall
apply only to Products licensed in accordance with those Exhibit(s) C to
the Agreement which do not contain a "GATEWAY Brand Names and Trademarks"
Section, if any.
9. The attached Exhibit F is hereby added to the Agreement.
10. Exhibit N of the Agreement is hereby amended and replaced with the
attached Exhibit N.
11. The term of the Agreement is hereby extended [*] from the end of the
calendar quarter in which the Amendment Date occurs.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
NOTICE:
FOR PRODUCT(S) SPECIFIED IN EXHIBIT C AS LICENSED UNDER THE "PER SYSTEM" ROYALTY
CALCULATION PROVISIONS, PLEASE NOTE THE FOLLOWING:
THIS IS A MICROSOFT PER SYSTEM LICENSE. AS A CUSTOMER, YOU MAY CREATE A "NEW
SYSTEM" AT ANY TIME THAT DOES NOT REQUIRE THE PAYMENT OF A ROYALTY TO MICROSOFT
UNLESS THE CUSTOMER AND MICROSOFT AGREE TO ADD IT TO THE LICENSE AGREEMENT.
ANY NEW SYSTEM CREATED MAY BE IDENTICAL IN EVERY RESPECT TO A SYSTEM AS TO WHICH
THE CUSTOMER PAYS A PER SYSTEM ROYALTY TO MICROSOFT PROVIDED THAT THE NEW SYSTEM
HAS A UNIQUE MODEL NUMBER OR MODEL NAME FOR INTERNAL AND EXTERNAL IDENTIFICATION
PURPOSES WHICH DISTINGUISHES IT FROM ANY SYSTEM THE CUSTOMER SELLS THAT IS
INCLUDED IN A PER SYSTEM LICENSE. THE REQUIREMENT OF EXTERNAL IDENTIFICATION MAY
BE SATISFIED BY PLACEMENT OF THE UNIQUE MODEL NAME OR MODEL NUMBER ON THE
MACHINE AND ITS CONTAINER (IF ANY), WITHOUT MORE.
IF THE CUSTOMER DOES NOT INTEND TO INCLUDE A MICROSOFT OPERATING SYSTEM PRODUCT
WITH A NEW SYSTEM, THE CUSTOMER DOES NOT NEED TO NOTIFY MICROSOFT AT ANY TIME OF
THE CREATION, USE OR SALE OF ANY SUCH NEW SYSTEM, NOR DOES IT NEED TO TAKE ANY
PARTICULAR STEPS TO MARKET OR ADVERTISE THE NEW SYSTEM..
UNDER MICROSOFT'S LICENSE AGREEMENT, THERE IS NO CHARGE OR PENALTY IF A CUSTOMER
CHOOSES AT ANY TIME TO CREATE A NEW SYSTEM INCORPORATING A NON-MICROSOFT
OPERATING SYSTEM. IF THE CUSTOMER INTENDS TO INCLUDE A MICROSOFT OPERATING
SYSTEM PRODUCT WITH THE NEW SYSTEM, THE CUSTOMER MUST SO NOTIFY MICROSOFT, AFTER
WHICH THE PARTIES MAY ENTER INTO ARM'S LENGTH NEGOTIATION WITH RESPECT TO A
LICENSE TO APPLY TO THE NEW SYSTEM.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the date first written above All signed copies of this Amendment shall be deemed
originals. This Amendment is executed only in the English language.
MICROSOFT CORPORATION GATEWAY 2000, Inc.
/s/ Ronald Hosogi /s/ Gretchen P. Hoover
- ------------------------------ -------------------------------
By (Signature) By (Signature)
Ronald Hosogi Gretchen P. Hoover
- ------------------------------ -------------------------------
Name (Printed) Name (Printed)
Director, OEM Senior Staff Counsel
- ------------------------------ -------------------------------
Title Title
[*] [*]
- ------------------------------ -------------------------------
Date [*]
EXHIBIT C
WINDOWS DESKTOP FAMILY
[*]
<TABLE>
<CAPTION>
PRODUCT NAME LANGUAGE APPLICABLE PER SYSTEM ROYALTY PER COPY LOCALIZATION ADDED BY
AND VERSION VERSION(S) ADDITIONAL * ROYALTY ADDITIONAL AMENDMENT
** PROVISIONS * ROYALTY NUMBER
<S> <C> <C> <C> <C> <C> <C>
1. (a) Royalty: Royalty:
Windows [*] [*]
Desktop
Family
A. EN, EE, J, FF, D, (a), (b), (c), (f) Royalty Royalty [*]
Window(R) 95 I, DU, J, PRC, Specified for Specified for
operating POR, RU, SW, DA, Windows Windows
system Desktop Family Desktop Family
OR Above Above
B. EN, EE, FF, D, (a), (c), (e), (f) Royalty Royalty [*]
MS-DOS(R) DU, J, E, POR, Specified for Specified for
operating RU, SW, DA, I, PRC Windows Windows
system Desktop Family Desktop Family
Version 6.22 Above Above
and
Enhanced
Tools for
MS-DOS(R)
Version 1.0
and
Windows(R)
operating
system
Version 3.11
OR
C. EN, EE, FF, D, (a), (c), (d), (f) [*] Royalty [*]
MS-DOS(R) DU, J, E, POR, Royalty Specified Specified for
operating RU, SW, DA, I, for Windows Windows
system PRC, Desktop Family Desktop Family
Version 6.22 Above Above
Enhanced
Tools for
MS-DOS(R)
Version 1.0
and Windows(R)
for
Workgroups
operating
system
Version 3.11,
OR
D. EN, EE, FF, D, (a), (c), (g) [*] for [*] [*]
Windows NT(R) DU, J, E, POR, Version 3.51 from In Addition to
Workstation RU, SW, DA, I, PRC [*] or upon first the Royalty
Version occurrence of Specified for
3.51 & 4.0 distribution of a Windows
(x86/Pentium (TM) preinstalled copy Desktop Family
compatible of Windows Above
version) NT-Workstation
4.0 for revenue,
whichever comes
first [*] for
Versions 3.51 or
4.0 in Addition
to the Royalty
Specified for
Windows Desktop
Family Above
Estimated Monthly Estimated
Volume for Monthly Volume
Windows Desktop for Windows
[*] Desktop
[*]
2. EN (c ), (d), (f), Royalty Royalty [*]
Windows(R)for (h) [*] [*]
Workgroups
operating
system
Version 3.11
3. EN (c ), (e), (f), Royalty Royalty [*]
Windows(R) (h) [*] [*]
operating
system
Version 3.11
4. EN (c ), (e), (f) Royalty Royalty [*]
MS-DOS(R) [*] [*]
operating
system
Version 6.22
5. EN (c ), (e), (f) Royalty Royalty [*]
Enhanced [*] [*]
Tools for
MS-DOS(R) 6.22
Version 1.02
</TABLE>
* A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table and the Product is indicated as licensed for one or more
Customer System(s) in the Customer System table of this Exhibit C.
**Language Version Key: A = Arabic, BP = Portuguese (Brazil), CE = Cyrillic
Enabled, CH = Traditional Chinese, CZ = Czech, D = German, DA = Danish , DU =
Dutch, E = Spanish, EE = Eastern and Central European, EN = USA English, F =
French, FF = France's French, FI = Finnish, HAN = Hangeul, HB = Hebrew, HUN =
Hungarian, I = Italian, J = Japanese, N = Norwegian, P = Portuguese, PE = Pan
European English, POL = Polish, PRC = PRC Simplified Chinese, RU = Russian, SL =
Slovenian, SW = Swedish, TH = Thai, TR = Turkish, Z = International English. If
GATEWAY is Licensed for the EN version of Product and if a Localization
Additional Royalty is specified in the Product table above, then in addition to
the language versions specified in the Product table above, GATEWAY may receive
Product Deliverables for the licensed Product in available language versions
listed in the Language Key (except CH, HAN, J, and PRC which may only be added
by amendment) by sending a written request to the attention of OEM Accounting
Services at the address listed in Exhibit N for royalty reports.
ADDITIONAL PROVISIONS KEY
(a) If GATEWAY is licensed for the Windows Desktop Family, GATEWAY may
distribute [*] the listed Product combinations or Products (i.e., A or B or C or
D) with each licensed Customer System. GATEWAY'S report shall separately
indicate the number of each such Product or combination (A, B, C, or D) that
GATEWAY distributes.
(b) (1) If GATEWAY wishes to include its name and/or logo on the Product
software "start-up" screen, GATEWAY will do so only in the location and manner
as designated in the OPK User's Guide provided in the Product Deliverables.
Otherwise, GATEWAY shall not alter the content or sequence of the Product
software "start-up", initialization or other screens.
(2) IF GATEWAY enters registration information on behalf of end users in the
boxes provided for the on-screen end user registration process for the Product
software, GATEWAY shall not enter its own name or make any other false or
fictional registrations. GATEWAY may not (i) relieve end users of their
obligations to enter Certificate of Authenticity ("COA") registration numbers in
the on-screen end user registration process and to reply to on-screen end user
license agreement inquiries or (ii) insert COA registration numbers or reply to
end user license agreement inquiries for or on behalf of end users.
(3) If and only if GATEWAY distributes the Product software solely as
Preinstalled Product Software (i.e., without a back-up copy of the Product on
CD, diskette, magnetic tape, or other external media) with any Customer System,
then GATEWAY shall also preinstall the Microsoft Create System Disk Tool
together with the back-up diskette images ("CAB" files) contained in the OPK on
the hard disk drive of such Customer System to enable the end user to make a
back-up copy of the Product software according the terms of the EULA. Diskette
images may only be used with the Microsoft Create System Disk Tool. GATEWAY may
not distribute, use, or authorize the use of the Microsoft Create System Disk
Tool or diskette images except as provided in this Additional Provision or as
specified in the OPK.
(4) Notwithstanding anything to the contrary contained in the definition of
"Product Release" in this Agreement, Windows 95 (and any subsequent releases of
Windows which may be designated by a change in the Calendar year - e.g., Windows
96, 97, 98, etc.) shall be deemed to be a Product Release.
(5) Any EULA for the Product distributed by GATEWAY must be identical to the
on screen EULA presented to the end user during Product setup.
(6) Windows 95 includes Microsoft At Work fax transmission software, Remote
Access Service, and Remote Procedure Calls, each of which provide methods for
stand-alone and networked computers to send and receive messages with certain
security levels. French law (Decree 92-1358 of December 1992) generally
prohibits the use in France of such technology, unless special approvals are
granted. Accordingly, Windows 95 has been designed to disable the security in
each of these features when the default locale assigned during installation is
France.
(e) (1) Notwithstanding anything to the contrary contained in the Agreement,
GATEWAY may distribute this Product only with Customer Systems which are
marketed and distributed under GATEWAY'S or GATEWAY Subsidiaries' brand names
and trademarks. The Products licensed under this Exhibit C may not be
distributed with Customer Systems which are marketed or distributed under any
third party brand names or trademarks.
(2) The royalty rate(s) specified above require pre-installation of the
Product as the "default" operating system on each Customer System distributed
with the Product (i.e., the Product will set up and execute unless the user
configures the Customer System otherwise). GATEWAY shall reinstall the Product
software solely in accordance with the installation instructions set forth in
the "OPK User's Guide" included in the preinsallation kit portion of the Product
Deliverables ("OPK"). GATEWAY may use the information, tools and materials
contained in the OPK solely to preinstall the Product software in accordance
with the OPK User's Guide and for no other purpose. Other than as specified in
the OPK User's guide, GATEWAY shall not modify the Product software, nor delete
or remove any features of functionality without the written approval of MS in
each instance.
(3) The following shall replace Section 3(g)(ii) with respect to Products
licensed in accordance with this Exhibit C:
"(ii) If [*] GATEWAY'S reported shipments of the applicable Customer Systems
licensed for the Windows Desktop Family (if licensed on a per system basis) or
units of Windows Desktop Operating System Family (if licensed on a per copy
basis) are [*] below GATEWAY's estimated monthly volume specified for such basis
(i.e., per copy or per system) for the Windows Desktop Family in the Product
table above, GATEWAY and MS shall negotiate an increase in the royalty rate(s)
for all Product(s) licensed under this Exhibit C on such basis to reflect
GATEWAY's lower shipment volumes. If, for any reason, MS and GATEWAY are unable
to agree upon new royalty rate(s) [*] after the date GATEWAY's royalty report is
due [*], GATEWAY's royalty rate(s) for each of the Products licensed under this
Exhibit C on such basis shall increase [*]. Such increased royalty rate(s) shall
be in effect for the remainder of the term of the Agreement commencing with the
monthly reporting period following [*]. Provided, however, that if GATEWAY's
reported monthly volume for such basis of Windows Desktop Family returns to or
exceeds the original estimated monthly volume [*] thereafter, GATEWAY's royalty
rate(s) for all Product(s) licensed under this Exhibit C on such basis shall be
restored to the rate(s) specified in the Product table above commencing with the
monthly reporting period following [*]."
(4) [intentionally left blank]
(5) GATEWAY's license for this Product under this Exhibit C shall be
effective as of the later of (1) the Effective Date of the Agreement or (ii)
[*].
(6) If the same Customer System is licensed on a per system basis for both
the Windows System Family and for individual operating system Products(s) (e.g.,
Windows, Windows for Workgroups, or MS-DOS) in this Exhibit C, GATEWAY shall be
relieved of its obligation to pay the royalty for the individual operating
system Product(s) provided that (i) GATEWAY does not ship both the individual
operating system Products(s) and the Windows Desktop Family with such Customer
System; and (ii) GATEWAY reports and pays MS the royalty due for the Windows
Desktop Family.
(7) Unless otherwise provided, GATEWAY may not (i) distribute both Windows
95 and any other MS operating system Product with the same Customer System; (ii)
distribute both Windows NT Workstation and any other MS operating system Product
with the same Customer System; or (iii) distribute both Windows and Windows for
Workgroups with the same Customer System.
(8) Provided a "per copy" royalty rate is listed for the Product in the
table above, if GATEWAY distributes this Product with a computer system which is
not listed as licensed for this Product in the Customer System table of this
Exhibit C, but which otherwise meets all of the requirements for a "Customer
System" for this Product, then such computer shall be deemed a licensed Customer
System for the Product on a per copy basis and GATEWAY agrees to comply with all
of the terms and conditions of this Agreement with respect to any such
distribution of Product.
(9) Notwithstanding anything to the contrary contained in Section2, GATEWAY
must distribute Product documentation with each Customer System distributed with
Product software. A COA must be affixed to each copy of Product documentation as
available from Authorized Replicators.
(d) Windows for Workgroups version 3.11 includes Microsoft At Work fax
transmission software, which provides methods for stand alone and networked
computers to send and receive fax messages with certain security levels. French
law (Decree 92-1358 of December 1992) generally prohibits the use in France of
such technology, unless special approvals are granted. Accordingly, OEMs should
provide only the version of Windows for Workgroups version 3.11 designed for
France to avoid violating the Decree.
(e) (1) The PRC language version of the Windows operating system Product is
version 3.2 The Japanese language version of the MS-DOS operating system is
version 6.2/V. The Japanese language version of Enhanced Tools for MS-DOS 6 is
1.0/V.
(2) The PRC language versions of Windows and MS-DOS are available with only
simplified Chinese character fonts licensed from a third party. GATEWAY
acknowledges that such fonts may differ in quality and characteristics to
Chinese character fonts available in other Microsoft Products.
(3) The PRC language versions of Windows and MS-DOS are available only
through selected Authorized Replicators as specified by MS. From time to time,
MS shall provide an updated list of Authorized Replicators through which the PRC
language version of this Product is available.
(4) The packaging for the PRC language version of this Product distributed
with Customer Systems within or to the PRC shall be clearly marked in both
English and simplified Chinese, "Not for distribution or use outside the
People's Republic of China".
(f) (1) Notwithstanding anything to the contrary contained in Section 2 of the
Agreement, GATEWAY's license for this Product shall extend to Windows NT
Workstation version 4.0, if such version is released by MS to other OEM
Customers generally during the term of the Agreement.
(2) In order to support end-users of this Product, GATEWAY agrees to employ
at all times at least one support technician who has successfully completed, at
GATEWAY's expense, the Microsoft Certified Professional program for this
Product.
(3) Though the Product Deliverables for this Product may include versions of
the Product designed for other types of microprocessors, GATEWAY is licensed to
distribute the Product only with and for use on Customer Systems based on the
Intel x86, Pentium or compatible architecture.
(4) The royalty rates specified in the Product table apply to shipment of
Customer Systems which are capable of utilizing two (2) or fewer
microprocessors. For Customer Systems which are capable of utilizing three (3)
or four (4) microprocessors, GATEWAY agrees to pay MS [*] the royalty rates
specified in the Product Table [i.e., Royalty = [*] (Windows Desktop Family
royalty + Windows NT Workstation additional royalty)]. GATEWAY is NOT licensed
to distribute this Product on Customer Systems which are capable of utilizing
more than four (4) microprocessors.
(g) In addition to shipping a copy of MS-DOS, Windows 95 or Windows
NT-Workstation preinstalled on Customer Systems, GATEWAY may ship emergency boot
files preinstalled on its portable and desktop computers. Such files shall be
restricted to those partial MS-DOS files necessary for rebooting a Customer
System.
(h) Notwithstanding any contrary provision of the Agreement, the price charged
GATEWAY for Windows 95 at any time during the term of the Agreement will be no
higher than the price charged by MS to any person who has (1) met to the same or
any lesser degree as GATEWAY the milestones, Product mixes, guidelines or other
tasks analogous to those include in any then-applicable promotional, market
development, "partnering" or other, similar type of arrangement between MS and
any person; and (2) purchased the same or lesser amount of such Product per unit
of time from MS as has GATEWAY; and (3) has licensed Windows 95 for distribution
with desktop, notebook and subnotebook computer.
CUSTOMER SYSTEMS
GATEWAY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user; (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, a hard disk drive (except if the Product software
is installed in ROM), and a case. Each listed Customer System must have a unique
model line name, model name, or model number which GATEWAY uses both internally
(in GATEWAY's books and records) and externally (on the Customer System case and
packaging). For each Product which GATEWAY chooses to license for distribution
with the listed Customer System, the letter "s" or "c" in the relevant box
indicates whether GATEWAY is licensing the Product on a "per system" or "per
copy" basis, respectively. New models may be added by agreement of the parties.
At GATEWAY's option, for purposes of administrative convenience, GATEWAY may
designate models by model line or series, (e.g., "Jaguar model line", Jaguar Pro
series", Jaguar Pro 750 model line", Jaguar Pro 950 series", etc.). Customer
Systems defined by model line or series shall include all present models which
include the designated model line or series name, (e.g., "Jaguar Pro model line"
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that GATEWAY designates models by model line or series in this
Exhibit C, then GATEWAY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
GATEWAY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which GATEWAY has designated previously as a Customer System.
PRODUCT NUMBER KEY: 1 = Windows Desktop Family; 2 = Windows for Workgroups 3.11;
3 = Windows 3.11; 4 = MS-DOS 6.2; 5 = Enhanced Tools for MS-DOS 6.2
ROYALTY BASIS KEY: C = per copy; S = per system; if Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
<TABLE>
<CAPTION>
Product Number
------------------------------------------------------
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
-------------------------- ---- - - - - - - - -
<S> <C> <C>
Professional Systems Pentium, S
Pentium Pro
Family PCs Pentium, S
Pentium Pro
Destination Systems Pentium, S
Pentium Pro
Solo Pentium S
Colorbook 2 486 S
Liberty 486 S
</TABLE>
GATEWAY HEREBY REPRESENTS AND WARRANTS THAT THE NAMES AND NUMBERS INDICATED IN
THE MODEL NAME OR MODEL NUMBER COLUMN IN THE TABLE ABOVE ACCURATELY DENOTE THE
ACTUAL DESIGNATION USED BY GATEWAY TO IDENTIFY THE LISTED MODELS (ON THE
CUSTOMER SYSTEM CASE AND IN GATEWAY'S INTERNAL BOOKS AND RECORDS).
Notwithstanding the foregoing, GATEWAY may exclude from royalty calculations the
following Customer Systems:
1) On bid quotations for [*] desktop systems or [*] portables for shipment [*]
of award of contract, provided that:
a) GATEWAY identifies any such bids by customer and reports to MS [*] and;
b) such Customer Systems are not distributed with Product.
This information is confidential to GATEWAY, is protected under Section 13 of
the Agreement and will only be used by MS to ensure the legality of any MS
software that may be used on such systems by the named customers.
2) That are distributed without Product to another MS OEM which is licensed by
MS for the Product. Gateway shall identify all such Customer Systems on its
royalty reports.
ATTACHMENT 1 TO EXHIBIT C
DISCOUNTS EARNED PURSUANT TO MARKET DEVELOPMENT AGREEMENT(S)
(a) This Attachment does not entitle GATEWAY to receive the discounts described
herein. Such discounts must be earned pursuant to a current valid Market
Development Agreement or Market Development and Support Agreement ("MDA")
between MS and GATEWAY.
(b) For purposes of this Attachment, "Other Windows Products" shall mean Windows
for Workgroups and Windows licensed individually under the Exhibit C for Windows
Desktop Family.
(c) GATEWAY has been recognized as having earned a discount [*] of [*] ("MDA-95
Discount") under its "Windows 95-Based PC Market Development Agreement" (the
"Windows 95 MDA") with MS.
(d) Under the terms of the Windows 95 MDA, the MDA-95 Discount is effective [*]
As consideration for GATEWAY's continued performance under the MDA Milestones
set forth in the Windows 95 MDA and subject to the conditions stated in this
Attachment, MS shall extend the effective term of the MDA-95 Discount [*].
(e) The MDA-95 Discount shall be applied to GATEWAY's royalty rates under the
Agreement as follows:
(1) For Exhibit C [*] which is entitled "Windows 95 (For MDA Accounts)" or
"Windows 95/Desktop Operating Systems Products (for MDA Accounts)",
GATEWAY's per system royalty rate(s) for Windows 95 under Exhibit C
shall be calculated in accordance with provisions indicated in Exhibit
C.
(2) For Exhibit C [*] which are entitled "For Windows Desktop Family",
GATEWAY's royalty rate(s) for the Windows Desktop Family and Other
Windows Products shall be calculated by the Formula Royalty = S - D,
where "S" is the royalty rate(s) listed in Product table of the Exhibit
C and "D" is the MDA-95 Discount.
(3) After expiration of the MDA-95 Discount on [*] GATEWAY's royalty
rates(s) shall return to the same royalty rate(s) as specified in the
attached Exhibit C [*], except as otherwise provided below in paragraph
(g).
(f) If the Agreement does not include an Exhibit C for Windows Desktop Family,
the MDA-95 Discount shall expire as set forth in the Windows 95 MDA and
thereafter GATEWAY's royalty rates(s) shall return to royalty rate(s) as
specified in the attached Exhibit C [*] except as otherwise provided in
paragraph (g). In the event that GATEWAY fails to continue to successfully
perform any Milestone(s) under the Windows 95 MDA, MS may terminate the
applicable portion of the MDA-95 Discount corresponding to the applicable
Milestone(s), and thereafter GATEWAY's royalty rate(s) shall return to the same
royalty rates as specified in the attached Exhibit C [*] less the full MDA 95
discount, less the applicable terminated Milestone discount.
(g) If the term of this Agreement extends [*] and if GATEWAY and MS enter into
another MDA which entitles GATEWAY to receive a royalty discount [*], the
discount for the Products covered by such MDA shall be effective the later of
[*] or the date such royalty discounts are determined to be effective in
accordance with such MDA.
EXHIBIT C5
WINDOWS NT(R) WORKSTATION UPGRADE
PER SYSTEM
* If Royalty/Basis and Language Version(s) are not specified for a particular
Product in the table below, then such Product is not licensed under this
Agreement.
** Language Key; D = German, E = Spanish, EN - English, FR = French, J =
Japanese
<TABLE>
<CAPTION>
Product Name and Language Applicable Royalty/Basis * Non-English Estimated Total Added by
Version Version(s) Additional Additional Number of Units Amendment Number
** Provisions Royalty of Product
---------------- ---------- ---------- --------------- ----------- --------------- ----------------
<S> <C> <C> <C>
Windows NT(R) (a), (b), (c), US$*** US$***
Workstation (d), (e), (f),
Upgrade Version (g)
4.0
</TABLE>
*** Windows NT Workstation Upgrade royalty is included in NT-Workstation Version
3.51 pricing in Exhibit C.
PRODUCT UPGRADE PROGRAM SCHEDULE
The current Product Upgrade Program Schedule is set forth in the table below for
each language version of the Product. MS may, in its sole discretion, extend the
Product Upgrade Program Schedule for one or more of the language versions of
Product on written notice to COMPANY.
<TABLE>
<CAPTION>
LANGUAGE VERSION OF PRODUCT ENGLISH FRENCH, GERMAN, & SPANISH JAPANESE
<S> <C> <C> <C>
Product Distribution Expiration Date [*] [*] [*]
</TABLE>
ADDITIONAL PROVISIONS KEY
(a)
(1) Gateway agrees that it will not distribute Product until MS advises its OEM
customers generally that Customer Systems with Windows NT Workstation Version
4.0 may be distributed.
(2) Upon both GATEWAY and MS signing Amendment Number 4, GATEWAY may begin
offering a coupon or promotional offer for fulfillment of Windows NT-Workstation
4.0 with Customer Systems that ship with Windows NT-Workstation 3.51. GATEWAY
may offer this coupon or promotional offer, known as the "Windows NT Workstation
Upgrade", upon MS receipt of GATEWAY's signature of this Amendment Number 4
until the date GATEWAY begins preinstalling Windows NT-Workstation 4.0 or [*],
whichever comes first. For each Customer System identified in this Exhibit,
GATEWAY shall pay the per system royalty for Windows NT Workstation 3.51 and
shall offer a coupon or promotional offer entitling an end user to a copy of
Windows NT Workstation 4.0(b)
Notwithstanding anything to the contrary contained in Sections 2 and 6 of
the Agreement, GATEWAY shall distribute the Product only in the form/packaging
available from the Authorized Replicator.
(c) Notwithstanding anything to the contrary contained in Sections 2 and 6 of
the Agreement, GATEWAY may distribute the Product only as an "upgrade" provided
by GATEWAY separate from a Customer System directly (without use of dealers or
other intermediaries) to an existing authorized end-user of the Prior Product on
a Customer System. GATEWAY shall not accept end user customer orders for a given
language version of Product later than the Product Distribution Expiration Date
specified for such language version in the Product Upgrade Program Schedule
above. GATEWAY's license to distribute each language version of the Product
under this Exhibit C shall expire on the Product Distribution Expiration Date
specified for such language version in the Product Upgrade Program Schedule
above.
(d) GATEWAY shall acquire the Product through one Authorized Replicator of
GATEWAY's choice. GATEWAY shall notify MS of the Authorized Replicator through
which GATEWAY will acquire the Product prior to placing the first order for
Product.
(e) This Product may only be distributed to end user customers located within
the geographical boundaries of the United States of America, Canada, Europe and
Japan.
(f) In order to support end-users of this Product, GATEWAY agrees to employ at
all times at least one support technician who has successfully completed, at
GATEWAY's expense, the Microsoft Certified Professional program for this
Product.
(g) All marketing or promotion of the Product shall be targeted exclusively to
end users of Customer Systems, as defined in this Exhibit C. GATEWAY shall place
coupons or other promotional materials to offer the Product to end users in
packages of Customer Systems distributed with Windows NT Workstation 3.51.
GATEWAY shall ensure that such coupons or materials expire not later than the
Product Distribution Expiration Date set forth in the Product Upgrade Program
Schedule above.
CUSTOMER SYSTEMS
GATEWAY's Customer Systems shall be the assembled computer systems described in
the table below which (i) are configured for use only by a single user; (ii) are
designed to use a video display and keyboard; and (iii) include at least a CPU,
a motherboard, a power supply, a hard disk drive (except if the Product software
is installed in ROM), and a case. Each listed Customer System must have a unique
model line name, model name, or model number which GATEWAY uses both internally
(in GATEWAY's books and records) and externally (on the Customer System case and
packaging). For each Product which GATEWAY chooses to license for distribution
with the listed Customer System, the letter "s" or "c" in the relevant box
indicates whether GATEWAY is licensing the Product on a "per system" or "per
copy" basis, respectively. New models may be added by agreement of the parties.
At GATEWAY's option, for purposes of administrative convenience, GATEWAY may
designate models by model line or series, e.g., "Jaguar model line", Jaguar Pro
series", Jaguar Pro 750 model line", Jaguar Pro 950 series", etc.). Customer
Systems defined by model line or series shall include all present models which
include the designated model line or series name, (e.g., "Jaguar Pro model line"
includes Jaguar Pro, Jaguar Pro 950, Jaguar Pro S, etc.; "Jaguar series"
includes Jaguar, Jaguar Pro, Jaguar Pro 950, Jaguar S400, etc.; "Jaguar Pro 950
series" includes Jaguar Pro 950, Jaguar Pro 955, etc.).
In the event that GATEWAY designates models by model line or series in this
Exhibit C, then GATEWAY may elect to include as Customer System(s) new models in
the model line or series by including any such new model(s) on its royalty
report for the reporting period in which each such new model is first
distributed with the Product. Unless otherwise agreed to by the parties prior to
GATEWAY's first distribution of a new model with the Product, each such new
model designated on a royalty report shall be licensed for the remainder of the
term of the Agreement on the same basis (i.e., per system or per copy) as the
other models in the model line or series and shall bear the applicable royalty
set forth in this Exhibit C. Any new model in the model line or series which is
not included in a royalty report as a licensed Customer System (and is thus not
licensed for the applicable Product) must have a unique model number or model
name used for internal and external identification purposes which distinguishes
it from any model which GATEWAY has designated previously as a Customer System.
PRODUCT NUMBER KEY: 1 = Windows Desktop Family; 2 = Windows for Workgroups 3.11;
3 = Windows 3.11; 4 = MS-DOS 6.2; 5 = Enhanced Tools for MS-DOS 6.2
ROYALTY BASIS KEY: C = per copy; S = per system; if Product box is blank, such
Product is not licensed for distribution with the listed Customer System.
The following Customer Systems that ship with a copy of Windows NT Workstation
Version 3.51 shall be considered Customer Systems for this Exhibit C5:
<TABLE>
<CAPTION>
Product Number
------------------------------------------------------
Processor
Model Name or Model Number Type 1 2 3 4 5 6 7 8
-------------------------- ---- - - - - - - - -
<S> <C> <C>
Professional Systems Pentium, S
Pentium Pro
Family PCs Pentium, S
Pentium Pro
Destination Systems Pentium, S
Pentium Pro
Solo Pentium S
Colorbook 2 486 S
Liberty 486 S
</TABLE>
GATEWAY HEREBY REPRESENTS AND WARRANTS THAT THE NAMES AND NUMBERS INDICATED IN
THE MODEL NAME OR MODEL NUMBER COLUMN IN THE TABLE ABOVE ACCURATELY DENOTE THE
ACTUAL DESIGNATION USED BY GATEWAY TO IDENTIFY THE LISTED MODELS (ON THE
CUSTOMER SYSTEM CASE AND IN GATEWAY'S INTERNAL BOOKS AND RECORDS).
EXHIBIT D
BRAND NAMES AND TRADEMARKS
GATEWAY AND GATEWAY SUBSIDIARIES BRAND NAMES AND TRADEMARKS
If GATEWAY Customer Systems are marketed, licensed, or distributed under
GATEWAY's or GATEWAY Subsidiaries' brand names and trademarks WHICH DO NOT
INCLUDE GATEWAY'S NAME, those brand names and trademarks must be listed below:
Brand Names & Trademarks
1.
2.
THIRD PARTY BRAND NAMES AND TRADEMARKS
If GATEWAY Customer Systems are marketed, licensed, or distributed by a third
party under brand names and trademarks which do not include GATEWAY's name,
those brand names and trademarks and model names used for the Customer Systems
by a third party must be listed below. As provided in the applicable Exhibit(s),
GATEWAY many not distribute certain Products with GATEWAY Customer Systems that
are marketed or distributed under any third party brand names or trademarks.
Brand Names & Trademarks Customer System Model Name Used by Third Party
1.
2.
EXHIBIT F
SUPPLEMENT RIGHTS
The purpose of this Exhibit is to set forth additional license rights and
related restrictions which may apply to Supplement(s) as may be provided by MS
from time to time. THE ACTUAL ADDITIONAL LICENSE RIGHTS AND RELATED RESTRICTIONS
FOR EACH SUPPLEMENT SHALL BE IDENTIFIED IN THE "SUPPLEMENT ADDENDUM" FOR EACH
SUCH SUPPLEMENT. The license rights shall be royalty-free and, except as
specified in the applicable Supplement Addendum, shall be subject to the terms
and conditions of the Agreement. GATEWAY's license rights to Supplement(s) shall
expire the earlier of: (i) termination of expiration of GATEWAY's license rights
to the Product to which the Supplement corresponds, or (ii) termination or
expiration of the Agreement.
1. "REPRODUCTION RIGHTS", if granted, shall mean:
(a) Reproduce, in accordance with specifications provided by MS, the Supplement
software in object code form on external media (i.e. diskette or CD-ROM) and end
user documentation for the Supplement, if any.
(b) Reproduce Product names and Product trademarks on packaging, labels, and end
user documentation for the Supplement subject to the following restrictions:
(i) GATEWAY's labeling and packaging for the Supplement shall clearly
indicate that the Supplement is a supplement to and/or replacement of the
Product provided by GATEWAY for use on GATEWAY's Computer Systems;
(ii) GATEWAY will cause to appear on the container and labels of Supplement
the copyright, trademark and patent notice(s), as they appear on the applicable
release of Product Deliverables; and
(iii) GATEWAY's name and/or trademarks shall not be displayed in relation to
Product name in a manner which suggests that GATEWAY's name and/or trademarks
are part of the Product name. GATEWAY's name and/or trademarks shall be
displayed on the packaging and disk labels more prominently than the name
"Microsoft".
2. "DISTRIBUTION ON EXTERNAL MEDIA WITH CUSTOMER SYSTEMS RIGHTS", if granted,
shall mean:
(a) Distribute one (1) copy of the Supplement software, reproduced in accordance
with the reproduction rights granted for such Supplement, with each of GATEWAY's
licensed Customer Systems to be distributed with Product, subject to the
following conditions:
(i) GATEWAY shall include with each copy of the Supplement a EULA addendum
which shall be substantially similar to the sample addendum attached hereto as
Attachment 1, except that it shall be adapted as may be required by the laws of
any non-USA jurisdiction in which GATEWAY distributes the Supplement.
3. "DISTRIBUTION TO EXISTING END USERS RIGHTS", if granted, shall mean:
(a) Distribute one (1) copy of the Supplement software, as acquired from an
Authorized Replicator if available, or reproduced in accordance with the
reproduction rights, if any, granted for such Supplement, to licensed end users
of GATEWAY's Customer Systems originally distributed with the Product, subject
to the following conditions:
(i) The Supplement shall be distributed directly from GATEWAY or an
MS-authorized fulfillment source;
(ii) GATEWAY shall include with each copy of the Supplement a EULA addendum
which shall be substantially similar to the sample addendum attached hereto as
Attachment 1, except that it shall be adapted as may be required by the laws of
any non-USA jurisdiction in which GATEWAY distributes the Supplement; and
(iii) GATEWAY shall offer the Supplement at no charge except that GATEWAY
may charge its reasonable cost of materials and shipping and handling costs.
4. "DISTRIBUTION VIA BULLETIN BOARDS RIGHTS", if granted, shall mean:
(a) Post and maintain the object code version of the Supplement on GATEWAY's
point to point communication link by modem (not Internet) bulletin board
corner(s) ("BBS") for distribution to end users of GATEWAY's Customer Systems
originally distributed with Product, subject to the following conditions:
(i) GATEWAY shall ensure that each copy of the Supplement includes a EULA
addendum which is substantially similar to the sample addendum attached hereto
as Attachment 1, except that it shall be adapted as may be required by the laws
of any non-USA jurisdiction in which GATEWAY distributes the Supplement; and
(ii) GATEWAY shall offer the Supplement at no charge to end users.
5. "DISTRIBUTION VIA INTERNET LINK RIGHTS", if granted, shall mean:
(a) Create and maintain a link on GATEWAY's Internet home page(s) to MS' copy of
the Supplement on MS' Internet home page(s) at the Universe Resource Locator(s)
listed in the Supplement Addendum.
6. "DISTRIBUTION VIA INTERNET PAGE RIGHTS", if granted, shall mean:
(a) Post and maintain the object code version of the Supplement on GATEWAY's
home page(s) on the Internet for distribution to end users of GATEWAY's Customer
Systems originally distributed with Product, subject to the following
conditions:
(i) GATEWAY shall include with each copy of the Supplement a EULA addendum
which is substantially similar to the sample addendum attached hereto as
Attachment 1, except that it shall be adapted as may be required by the laws of
any non-USA jurisdiction in which the Supplement is distributed; and
(ii) GATEWAY shall offer the Supplement at no charge to end users.
7. "OTHER RIGHTS", if granted, and restrictions shall be as set forth in the
applicable Supplement Addendum.
ATTACHMENT 1 TO EXHIBIT F
ADDENDUM TO THE MICROSOFT SOFTWARE LICENSE AGREEMENT
FOR ___________________
IMPORTANT READ THIS FIRST. By using the software files (the "Software") provided
with this Addendum, you are agreeing to be bound by the following terms. If you
do not agree to be bound by these terms, you may not use the Software.
The Software is provided for the sole purpose of replacing or supplementing
certain portions of a licensed copy of the above listed Microsoft software
product ("ORIGINAL PRODUCT"). Upon installation, the Software files become a
part of the ORIGINAL PRODUCT and are subject to the same warranty and license
terms and conditions as the ORIGINAL PRODUCT. If you do not have a valid license
to use the Original Product, you may not use the Software. Any other use of the
Software is prohibited.
EXHIBIT N
ADDRESSES
GATEWAY: MS:
NOTICES: NOTICES:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attn: Vice President, OEM Group
Attn:
Telephone:
Fax:
BILL TO: WITH COPY TO:
MICROSOFT CORPORATION
One Microsoft Way
Redmond, WA
98052-6399
U.S.A.
Attn: Attn: Law & Corporate Affairs
Fax: +1-206-936-7329
SHIP TO:
OTHER CORRESPONDENCE:
OEM Sales
MICROSOFT CORPORATION
One Microsoft Way
Attn: Redmond, WA 98052-6399
U.S.A.
GATEWAY Support
telephone no:
REPORTS:
Royalty reports shall be made to:
Microsoft Corporation
One Microsoft Way
Redmond, WA 98052-6399
U.S.A.
Attn: OEM Finance
Fax: +1-206-936-5298
or to such other address as MS may specify from time to time.
PAYMENTS:
If GATEWAY is a U.S.A. or Canada based GATEWAY,
payments shall bemade by wire transfer to:
MICROSOFT CORPORATION
c/o First Interstate Bank of Washington
Seattle Main Branch
Seattle, WA
U.S.A.
ABA 125-000-286
SWIFT Code: FIWAUS66
Account # 001-025865
Regarding:
Microsoft OEM Collections
If GATEWAY is based outside the U.S.A. and Canada,
payments shall be made by wire transfer to:
MICROSOFT CORPORATION
c/o Citibank N.A.
399 Park Avenue
New York, NY 10043
U.S.A.
ABA 021000089
SWIFT Code: CITIUS33
Account # 38468231
Regarding:
Microsoft International OEM Collections
or to such other address or account as MS may specify from time to time. GATEWAY
agrees to ensure that the regarding line stated above, the MS license agreement
number for the Agreement, and the MS invoice number (if any) are specified on
each wire transfer payment made pursuant to the Agreement.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT 10.3
AMENDMENT NUMBER 5
Amendment Date: [*]
to MICROSOFT OEM LICENSE AGREEMENT FOR DESKTOP OPERATING
SYSTEMS between MICROSOFT
CORPORATION, a Washington, U.S.A. Corporation and GATEWAY
2000 INC., a Corporation of Delaware
Agreement Effective Date: [*] MS License [*]
Effective as of the Amendment Date indicated above, the below signed parties
agree that the indicated portions of the above referenced license agreement
(hereinafter the "Agreement") are hereby amended by this instrument (hereinafter
the "Amendment"), as follows:
1. Notwithstanding anything to the contrary in the Agreement (including
Exhibits), the following shall apply to Product acquired from Authorized
Replicator(s).
(a) GATEWAY shall acquire all components of each unit of Product to be
distributed with a Customer System (i.e., APM, Product end user
documentation, and Product software on external media, as applicable) from
an Authorized Replicator and in a single package or stock keeping unit.
Provided, however, this shall not preclude GATEWAY from acquiring separate
units of Product from multiple Authorized Replicators.
(b) All orders for Windows for Workgroups, MSDOS, Windows '95, Windows NT
Workstation and their licensed successor placed with Authorized
Replicators, and payments to the Authorized Replicators, shall be made by
GATEWAY or GATEWAY Subsidiaries. Shipments by Authorized Replicators may be
delivered only to locations owned or controlled by GATEWAY or GATEWAY
Subsidiaries. GATEWAY hereby certifies that all addresses to which GATEWAY
or GATEWAY Subsidiaries request Product delivered shall comply with the
foregoing requirement.
2. The attached Addendum to Exhibit(s) C, C1, C2, C3 and C5 is hereby added to
the Agreement, and GATEWAY hereby agrees to comply with all the terms and
conditions thereof.
All capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Agreement. The terms of this Amendment shall supersede
any inconsistent terms contained in the Agreement.
NOTICE:
FOR PRODUCT(S) SPECIFIED IN EXHIBIT C AS LICENSED UNDER THE "PER SYSTEM" ROYALTY
CALCULATION PROVISIONS, PLEASE NOTE THE FOLLOWING:
THIS IS A MICROSOFT PER SYSTEM LICENSE. AS A CUSTOMER, YOU MAY CREATE A "NEW
SYSTEM" AT ANY TIME THAT DOES NOT REQUIRE THE PAYMENT OF A ROYALTY TO MICROSOFT
UNLESS THE CUSTOMER AND MICROSOFT AGREE TO ADD IT TO THE LICENSE AGREEMENT.
ANY NEW SYSTEM CREATED MAY BE IDENTICAL IN EVERY RESPECT TO A SYSTEM AS TO WHICH
THE CUSTOMER PAYS A PER SYSTEM ROYALTY TO MICROSOFT PROVIDED THAT THE NEW SYSTEM
HAS A UNIQUE MODEL NUMBER OR MODEL NAME FOR INTERNAL AND EXTERNAL IDENTIFICATION
PURPOSES WHICH DISTINGUISHES IT FROM ANY SYSTEM THE CUSTOMER SELLS THAT IS
INCLUDED IN A PER SYSTEM LICENSE. THE REQUIREMENT OF EXTERNAL IDENTIFICATION MAY
BE SATISFIED BY PLACEMENT OF THE UNIQUE MODEL NAME OR MODEL NUMBER ON THE
MACHINE AND ITS CONTAINER (IF ANY), WITHOUT MORE.
IF THE CUSTOMER DOES NOT INTEND TO INCLUDE A MICROSOFT OPERATING SYSTEM PRODUCT
WITH A NEW SYSTEM, THE CUSTOMER DOES NOT NEED TO NOTIFY MICROSOFT AT ANY TIME OF
THE CREATION, USE OR SALE OF ANY SUCH NEW SYSTEM, NOR DOES IT NEED TO TAKE ANY
PARTICULAR STEPS TO MARKET OR ADVERTISE THE NEW SYSTEM.
UNDER MICROSOFT'S LICENSE AGREEMENT, THERE IS NO CHARGE OR PENALTY IF A CUSTOMER
CHOOSES AT ANY TIME TO CREATE A NEW SYSTEM INCORPORATING A NON-MICROSOFT
OPERATING SYSTEM. IF THE CUSTOMER INTENDS TO INCLUDE A MICROSOFT OPERATING
SYSTEM PRODUCT WITH THE NEW SYSTEM, THE CUSTOMER MUST SO NOTIFY MICROSOFT, AFTER
WHICH THE PARTIES MAY ENTER INTO ARM'S LENGTH NEGOTIATION WITH RESPECT TO A
LICENSE TO APPLY TO THE NEW SYSTEM.
IN WITNESS WHEREOF, the parties have executed this Amendment in duplicate as of
the first date written above. All signed copies of this Amendment shall be
deemed originals. This Amendment is executed only in the English language.
MICROSOFT CORPORATION _________________________
(GATEWAY 2000)
/s/ Ronald Hosogi /s/William M. Elliot
- ----------------- -------------------------
By By
Ronald Hosogi William M. Elliot
- ----------------- -------------------------
Name (Printed) Name (Printed)
Senior Vice President and
Director, OEM General Counsel
- ----------------- -------------------------
Title Title
[*] [*]
- ----------------- -------------------------
Date Date
[*]
ADDENDUM TO EXHIBIT(S) C
ADDITIONAL TERMS FOR DESKTOP OPERATING SYSTEM PRODUCTS
(a) Notwithstanding anything to the contrary that may be contained in the
Agreement including the above - referenced Exhibit(s) C, the following
shall apply to Windows 95 and/or Windows NT Workstation, if licensed under
the Agreement:
(1) GATEWAY is not licensed to, and agrees that it will not, modify, in any
way, or delete any aspect of the Product software (including, without
limitation, any features, shortcuts, icons, "wizards", folders (including
sub-folders) or programs of Product software) as delivered by MS in the
Product Deliverables, except if and as specifically permitted below or in
the OPK User's Guide ("OPK") provided in the Product Deliverables. In
particular, and without limitation, this means that GATEWAY is not licensed
to and agrees that it will not:
(A) Modify or obscure, in any way, the sequence or appearance of any
screens displayed by the Product software as delivered by MS from the
time the Customer System completes BIOS processing after being
switched on by the end user and transfers control to the Product
software loaded from the hard disk("End User Boot") until the time
that the "Welcome to [Product name]" program has been run and closed
by the end user and the Customer System displays the Product software
"desktop" screen defined in the OPK ("Desktop Screen").
(B) Except as provided in (C), display any content (including visual
displays or sounds) from End User Boot through and including the time
that the Customer System has displayed the Desktop Screen.
(C) Modify or obscure, in any way, the appearance of the Desktop Screen
(including without limitation, the addition or modification of
background wallpaper bitmaps displayed upon End User Boot); provided,
however, that GATEWAY may add icons or folders to the Desktop Screen
provided that any such icons are the same size and substantially
similar shape as icons included on the Desktop Screen as delivered by
MS and that any such folders are the same size, shape and appearance
as folders included on the Desktop Screen as delivered by MS.
(D) Use any portion of Product software to enable any programs or other
content to run or appear prior to End User Boot.
(E) Configure any programs (including without limitation any "shells",
"screen savers" or "welcome" scripts), "wizards" or other content to
be enabled, run or initialized automatically (i.e., without requiring
a deliberate act of the end user) from an icon or folder on the
Desktop Screen or from the "Start" Menu of the Desktop Screen or
otherwise. By way of example only, and without limiting the generality
of the foregoing, GATEWAY agrees that it shall not (1) populate with
any other programs or other content the Product software "Start-up"
directory (i.e., "Windows\Start Menu\Programs\StartUp" folder for
Windows 95, or "%windir%\profiles\[user(s)]\Start
Menu\Programs\Startup" folder for Windows NT Workstation) or (2)
populate the boot.ini, config.sys, autoexec.bat, win.ini, system.ini,
system.dat or user.dat files in any manner which will cause any
program or content to run or load automatically upon End User Boot,
except for device drivers necessary to support preinstalled or
preconfigured hardware devices (e.g., network cards, printers, etc.).
(F) Modify or add content to any directories installed by the Product
software, except as permitted in the OPK for preinstallation of
applications by GATEWAY.
(2) GATEWAY agrees that it will preinstall and begin shipment of the most
current licensed release of Product (i.e., Product Release, Version
Release, Update Release or Supplement) on all Customer System models first
distributed [*] (or an earlier date, at GATEWAY's option) following MS'
shipment of the corresponding OPK or OPK supplement for such release;
provided that if a shipment of the OPK or OPK supplement from MS occurs
between [*] of a given calendar year, GATEWAY agrees that it will begin
shipment of most current licensed release of Product [*] the following
year.
(b) Notwithstanding anything to the contrary contained in the Agreement
(including Exhibits), the following shall apply to all Products licensed
under the above referenced Exhibit(s) C:
(1) GATEWAY may distribute Product(s) only with Customer Systems which are
marketed and distributed exclusively under GATEWAY's or GATEWAY
Subsidiaries' brand names, trade names and trademarks. The Product(s) may
not be distributed with Customer Systems which are marketed or distributed
under any name which includes any third party brand names, trade names or
trademarks.
(2) If, at any time, MS becomes aware of any distribution of Product in
violation of the Agreement, then without limiting its remedies, MS may
charge GATEWAY for each such Customer System or unit of Product, as
applicable, an additional royalty equal to [*] the highest royalty for the
Product(s). GATEWAY shall pay such additional royalty [*] of receipt of MS'
invoice.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 4
TO THE LICENSE AGREEMENT
BETWEEN
GATEWAY 2000 AND MICROSOFT CORPORATION
DATED [*] CONTRACT NO. [*]
This Amendment ("Amendment") to the license Agreement ("Agreement")
between MICROSOFT CORPORATION ("MS") and GATEWAY 2000 ("GATEWAY") dated [*] is
made and entered into this [*].
1. The following additional provision shall be added to Exhibit C:
(r) GATEWAY shall pay a [*] royalty on all Destination Customer Systems
distributed in the United States of America and Canada with Encarta 96,
Cinemania 96, Money Version 4.0 for Windows 95 and Magic School Bus-Solar
System. Additionally, GATEWAY shall pay a [*] royalty on all Destination
Customer Systems distributed in the United States of America and Canada
with Encarta 96, Cinemania 96, Money Version 4.0 for Windows 95, and Magic
School Bus-Solar System and Office for Windows 95, Professional Edition
with Bookshelf.
2. The following Product descriptions shall supersede the existing
Product descriptions in Exhibit C:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Office for Authorized EN Yes (a), (b), (c), 1,2,3,4 [*] N/A
Windows 95, Replication (d), (m),
Professional (q), (r)
Edition with
Bookshelf
Office for Authorized D, FR, Z, Yes (a), (b), (c), 1,2,3,4 [*] [*]
Windows 95, Replication DU, SW (d), (n)
Professional
Edition
Encarta(TM)1995 Authorized EN Yes (a), (b), 1,2,3,4 [*] NA
& 1996 Editions Replication (c), (d),
(e), (I), (r)
Cinemania(R) Authorized EN Yes (a), (b), (c), 1,2,3,4 [*]
Interactive Movie Replication (d),
Guide 1995 and (e), (i), (r)
1996 Editions
Magic School Authorized EN Yes (a), (b),(d), 1,2,3,4
Bus-Solar Replication (e), (i), (r)
System
Money Version Authorized EN, D, FR, Yes (a), (b), 1,2,3,4 (j)(k) [*] [*] of [*]
3.0 and Money Replication Z (c), (l) [*] (m) [*] (n) [*]
for Windows 95 (d), (j), (k), (r) [*]
(j), (k), (l),
(m), (n), (r),
(t)
</TABLE>
2. Except as provided herein, all terms of the agreement shall remain in full
force and effect. In the event of inconsistencies between the Agreement and this
Amendment, the terms and conditions of the Amendment shall be controlling.
This Amendment shall be null and void unless signed by GATEWAY and returned to
MS [*] by GATEWAY.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Agreement as
of the date set forth above. All signed copies of this Amendment to the
Agreement shall be deemed originals. This Amendment does not constitute an offer
by MS. This Amendment shall be effective upon execution on behalf of GATEWAY and
MS by their duly authorized representatives.
MICROSOFT CORPORATION GATEWAY 2000 INC.
/s/ Ronald Hosogi /s/William M. Elliot
By By
/s/ Ronald Hosogi William M. Elliot
Name (Print) Name (Print)
Senior Vice President and
Director, OEM General Counsel
Title Title
[*] [*]
Date Date
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GATEWAY 2000,
INC.'S CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 401,126
<SECURITIES> 0
<RECEIVABLES> 420,141
<ALLOWANCES> (18,561)
<INVENTORY> 210,598
<CURRENT-ASSETS> 1,082,089
<PP&E> 402,512
<DEPRECIATION> 93,740
<TOTAL-ASSETS> 1,416,562
<CURRENT-LIABILITIES> 622,570
<BONDS> 12,374
0
0
<COMMON> 767
<OTHER-SE> 724,223
<TOTAL-LIABILITY-AND-EQUITY> 1,416,562
<SALES> 3,482,398
<TOTAL-REVENUES> 3,482,398
<CGS> 2,821,896
<TOTAL-COSTS> 2,821,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,760
<INTEREST-EXPENSE> 460
<INCOME-PRETAX> 248,146
<INCOME-TAX> 85,610
<INCOME-CONTINUING> 162,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162,536
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 0
</TABLE>
