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 JUNE 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 August 5, 1996, there were 76,618,727 shares of the Common Stock
of the Company, $.01 par value per share, outstanding. As of August 5, 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 SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 766,392 $ 1,137,262 $ 1,542,421 $ 2,279,464
Cost of goods sold 644,292 926,347 1,296,993 1,849,884
----------- ----------- ----------- -----------
Gross profit 122,100 210,915 245,428 429,580
Selling, general and administrative expenses 74,949 140,114 146,083 288,277
----------- ----------- ----------- -----------
Operating income 47,151 70,801 99,345 141,303
Other income, net 4,398 7,005 9,176 12,999
----------- ----------- ----------- -----------
Income before income taxes 51,549 77,806 108,521 154,302
Provision for income taxes 16,772 26,454 35,290 52,463
----------- ----------- ----------- -----------
Net income $ 34,777 $ 51,352 $ 73,231 $ 101,839
=========== =========== =========== ===========
Share and per share information:
Net income per share $ 0.44 $ 0.66 $ 0.93 $ 1.31
=========== =========== =========== ===========
Weighted average shares outstanding 78,782 77,961 78,809 77,888
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
<TABLE>
<CAPTION>
GATEWAY 2000, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1996
(in thousands, except share and per share amounts)
DECEMBER 31, JUNE 30,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 166,397 $ 362,552
Marketable securities 3,032 --
Accounts receivable, net 405,283 370,724
Inventory 224,916 199,091
Deferred income taxes 40,908 43,687
Other 25,653 24,432
----------- -----------
Total current assets 866,189 1,000,486
Property, plant and equipment, net 170,263 211,447
Software costs, net 58,477 71,290
Other assets 29,082 27,552
----------- -----------
$ 1,124,011 $ 1,310,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term obligations $ 13,564 $ 13,052
Accounts payable 235,064 279,487
Accrued liabilities 108,976 124,564
Accrued royalties payable 123,385 124,040
Customer prepayments 16,397 10,164
Income taxes payable 27,905 35,742
----------- -----------
Total current liabilities 525,291 587,049
Long-term obligations, net of current maturities 10,805 8,128
Deferred income taxes 6,744 11,031
Other liabilities 25,652 42,949
----------- -----------
Total liabilities 568,492 649,157
----------- -----------
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 76,596,704 shares issued and outstanding, respectively 746 766
Additional paid-in capital 280,447 284,678
Cumulative translation adjustment 324 302
Unrealized loss on marketable securities (31) --
Retained earnings 274,033 375,872
----------- -----------
Total stockholders' equity 555,519 661,618
----------- -----------
$ 1,124,011 $ 1,310,775
=========== ===========
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 SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(in thousands)
(Unaudited)
SIX MONTHS ENDED JUNE 30,
-------------------------
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 73,231 $ 101,839
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 14,484 26,200
Provision for uncollectible accounts receivable 2,413 7,269
Deferred income taxes 97 81
Other income, net (251) 356
Changes in operating assets and liabilities:
Accounts receivable (11,261) 27,290
Inventory (61,331) 13,705
Other current assets (9,696) 1,285
Accounts payable (22,207) 44,423
Accrued liabilities 12,456 (8,575)
Accrued royalties 22,556 655
Customer prepayments (5,991) (6,233)
Income taxes payable 2,537 35,292
Other liabilities 8,070 19,214
--------- ---------
Net cash provided by operating activities 25,107 262,801
--------- ---------
Cash flows from investing activities:
Capital expenditures (18,971) (47,340)
Software costs (17,133) (17,801)
Purchases of available-for-sale securities (10,680) --
Purchases of held-to-maturity securities (1,685) --
Proceeds from sale of available-for-sale securities 19,485 --
Proceeds from maturities of held-to-maturity securities 5,000 --
Payment received on note -- 5,000
Purchases of other assets (1,200) (5,167)
--------- ---------
Net cash used in investing activities (25,184) (65,308)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of notes payable 5,000 5,000
Principal payments on long-term obligations and notes payable (2,956) (7,350)
Stock options exercised 564 1,167
--------- ---------
Net cash provided by (used in) financing activities 2,608 (1,183)
Foreign exchange effect on cash and cash equivalents -- (155)
--------- ---------
Net increase in cash and cash equivalents 2,531 196,155
Cash and cash equivalents, beginning of period 214,021 166,397
--------- ---------
Cash and cash equivalents, end of period $ 216,552 $ 362,552
========= =========
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 June 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
six months ended June 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, JUNE 30,
1995 1996
--------- ---------
(UNAUDITED)
(IN THOUSANDS)
Marketable securities:
Available-for-sale $ 3,032 $ --
========= =========
Accounts receivable, net:
Accounts receivable $ 416,837 $ 384,768
Less allowance for uncollectible accounts (11,554) (14,044)
--------- ---------
$ 405,283 $ 370,724
========= =========
Inventory:
Components and subassemblies $ 221,601 $ 191,954
Finished goods 3,315 7,137
--------- ---------
$ 224,916 $ 199,091
========= =========
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.
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 JUNE 30, SIX MONTHS ENDED JUNE 30,
-------------------------------- --------------------------------
1995 1996 1995 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 84.1% 81.5% 84.1% 81.2%
--------------- --------------- --------------- ---------------
Gross profit 15.9% 18.5% 15.9% 18.8%
Selling, general and administrative expenses 9.8% 12.3% 9.5% 12.6%
--------------- --------------- --------------- ---------------
Operating income 6.1% 6.2% 6.4% 6.2%
Other income, net 0.6% 0.6% 0.6% 0.6%
--------------- --------------- --------------- ---------------
Income before income taxes 6.7% 6.8% 7.0% 6.8%
Provision for income taxes 2.2% 2.3% 2.3% 2.3%
--------------- --------------- --------------- ---------------
Net income 4.5% 4.5% 4.7% 4.5%
=============== =============== =============== ===============
</TABLE>
Sales. Sales increased 48% in the second quarter and first half of 1996
over the comparable periods of 1995. Unit sales increased 48% to approximately
424,000 from 286,500 in the second quarter of 1995. For the first half of 1996,
unit shipments increased 41% to approximately 824,000 from approximately 584,000
in the first six months of 1995. Sales in the second quarter of 1996 decreased
.4% from sales in the first quarter of 1996, and unit shipments for the second
quarter increased 6% over unit shipments in the first quarter of 1996.
The increase in sales for the second quarter and first half of 1996 over
the comparable periods of 1995 resulted from continued growth in the U.S. and
European markets, expansion into the Japanese and Australian markets,
accelerated growth in sales of the Company's portable products, and a reduction
in the percentage of order backlog as a percentage to total shipments. Net sales
from international operations in the second quarter of 1996 increased 91% to
$176.4 million from $92.3 million in the second quarter of 1995. For the first
half of 1996, international sales increased 102% to $366.4 million from $181.7
million in the first half of 1995. The Company's Asia Pacific operations, which
were not reflected in the results of operations until the fourth quarter of
1995, accounted for $59.4 million of the increase in the quarter, and $100.8
million of the increase for the first half of the year. The increase in portable
product sales was driven by increased demand for the Solo(R), a Pentium-based
portable product optimized for Windows 95(R), introduced in the third quarter of
1995.
Weighted average unit prices in the second quarter were essentially the
same as prices in the second quarter of 1995, but for the first half of 1996
prices increased 5% to approximately $2,770 from approximately $2,640 in the
first half of 1995, due to higher weighted average unit prices in the first
quarter of 1996. Prices in the second quarter of 1996 declined 6% from prices in
the first quarter of 1996 resulting from the Company's active management of
prices in order to pass on cost decreases to customers. Although unit prices for
specific PC products have generally 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.
Gross Profit. Gross profit in the second quarter and first half of 1996
increased 73% and 75%, respectively, over the comparable periods of 1995. As a
percentage of sales, gross profit for the second quarter and first half of 1996
increased to 18.5% and 18.8% from 15.9% for the comparable periods of 1995.
The improvement in gross profit during 1996 was achieved, despite
continual competitive pressure on PC prices, 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 second quarter as a percent to
sales decreased to 18.5% from the abnormally high 19.1% in the first quarter of
1996 due to a slowing of the decrease in component costs and the timing of these
cost decreases being passed on to customers through price decreases.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses for the second quarter and first half of 1996
increased approximately 87% and 97%, respectively, over the comparable periods
of 1995. As a percentage of sales, in the second quarter and first half of 1996,
these expenses increased to approximately 12.3% and 12.6%, respectively, from
9.8% and 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
second quarter and first half of 1996 compared with 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 United States
operations.
Marketing expenses increased as a percentage of sales in the second
quarter and first six months of 1996 compared to the second quarter and first
six 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 second quarter of 1996 decreased to $140.1 million or 12.3% of
sales from $148.2 million or 13.0% of sales in the first quarter of 1996. The
decrease is primarily attributable to tight cost controls and realization of
some of the efficiencies contemplated by the major information systems
installations that have been in progress over the past year. Additionally, the
Company experienced a beneficial impact from improved performance of the
Company's Asia/Pacific operations, where operating expenses have been an
abnormally high percentage of sales while the Company is in a start-up mode of
operations.
Operating Income. Due to the factors discussed above, operating income in
the second quarter of 1996 increased by approximately 50.2% to $70.8 million
from $47.2 million in the second quarter of 1995. Operating income for the six
months ended June 30, 1996 increased 42.2% to $141.3 million from $99.3 million
in the first six months of 1995. As a percentage of sales, operating income for
the quarter was essentially the same as in the second quarter of 1995, and for
the six month period operating income decreased to 6.2% of sales from 6.4% 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 $7.0
million in the second quarter of 1996 from $4.4 million in the second quarter of
1995. For the six months ended June 30, 1996, Other income, net increased to
$13.0 million from $9.2 million during the first six 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 in the first quarter and six months of 1996 compared to the
comparable periods of 1995.
Income Taxes. The Company's effective tax rate was 34.0% for the three
months and six months ended June 30, 1996, which is consistent with the
effective rate of 34.0% experienced for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operating and capital expenditure
requirements to date principally through cash flow from its operations. At June
30, 1996 the Company had cash and cash equivalents of $362.6 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 June 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 $262.8 million of cash from operations during the
six months ended June 30, 1996, including $135.7 million of net income adjusted
for non-cash charges. Collection of seasonally high fourth quarter accounts
receivable, particularly in the first quarter, and a reduction in the amount of
inventory on hand generated approximately $41.0 million in cash, and an increase
in accounts payable, income taxes payable and other liabilities generated an
additional $98.9 million in cash. The Company used approximately $65.3 million
in cash for investing activities, principally as a result of the Company's
continued investment in facilities, equipment and information systems. The
Company used approximately $1.2 million in cash from financing activities during
the first six months of 1996, principally due to short-term borrowings net of
principal payments on long-term obligations.
At June 30, 1996 the Company owed approximately $21.2 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 as successful as its
entry into Europe has been. 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.
Litigation. The Company is subject to litigation in the ordinary course of
its business as well as specific suits outside the ordinary course of business.
For an update on significant litigation outside of the ordinary course of
business the outcome of which may affect future results of operations or cash
flows see Part II, Item 1. Legal Proceedings on page 12 of this Report and see
Note 4 to the Unaudited Consolidated Financial Statements of the Company on page
6 of this Report.
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
Four consumer class actions have recently been filed against the
Company challenging its advertising and marketing practices. On June 17, 1996, a
class action lawsuit styled Walton and Hodges v. Gateway 2000, Inc., was filed
against the Company in the Bucks County, Pennsylvania Court of Common Pleas. The
action alleges breach of contract and certain express and implied warranties,
violation of certain federal and state consumer statutes, and negligence and
negligent misrepresentation arising from sales of 486 desktop computer systems
sold as "Intel Pentium Technology Ready". The plaintiffs seek compensatory and
punitive damages and additional unspecified amounts. On July 8, 1996, a class
action lawsuit styled Hill and Hill v. Gateway 2000, Inc., David Prais and Does
1-10 was filed against the Company and David Prais, the Company's marketing
communications manager, in the United States District Court for the Northern
District of Illinois. The action alleges that the Company's 10th Anniversary
System as delivered to customers did not contain advertised components. The
plaintiffs seek compensatory and punitive damages, equitable and declaratory
relief and additional unspecified amounts. On July 22, 1996, a class action
lawsuit captioned Joel Levy, William Verno, et al. v. Gateway 2000, Inc.,
Theodore W. Waitt was filed against the Company and its Chairman and CEO in the
Supreme Court of the State of New York for the County of New York. The action
seeks damages on behalf of a purported class of all purchasers of products
manufactured or distributed by the Company, based upon alleged
misrepresentations, breach of warranty and deceptive sales practices relating to
toll-free service and technical support for computers and related products in
violation of state and local consumer statutes and common law duties. The
plaintiffs seek compensatory and punitive damages and equitable and/or
declaratory relief. On July 26, 1996, a class action lawsuit styled Sara
Krakauer and Daniel Krakauer v. Gateway 2000, Inc., was filed against the
Company in the Circuit Court of Cook County, Illinois. The plaintiffs purport to
represent a class of customers who purchased Company computer systems containing
a certain drive component and video card. The action alleges that such computer
systems did not contain advertised components. The plaintiffs seek damages and
equitable and/or other relief. The Company intends to contest vigorously the
allegations raised in the four complaints. As these actions are at a preliminary
stage and no discovery has been conducted in any 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 any of these actions. There can be no assurance that an adverse
determination in any of these matters 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
The Company's Annual Meeting of Stockholders was held on May 16, 1996. At
the meeting, stockholders voted on (i) the election of two Class III directors
of the Company to hold office until the annual meeting of stockholders of the
Company to be held in 1999 and until a successor is duly elected and qualified,
(ii) approval of the 1996 Long-Term Incentive Equity Plan, (iii) approval of the
1996 Non-Employee Directors Stock Option Plan, and (iv) the ratification of the
appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants
for the fiscal year ending December 31, 1996.
<TABLE>
<CAPTION>
Votes Votes Withheld/ Broker
For Against Abstentions Non-Votes
---------- --------- ----------- ---------
<C> <C> <C> <C> <C>
1. Election of Directors
George H. Krauss 67,694,449 -- 342,772 --
Richard D. Snyder 67,892,804 -- 144,417 --
2. 1996 Long-Term Incentive Equity Plan 60,132,923 6,991,904 96,273 816,121
3. 1996 Non-Employee Directors Stock 64,980,064 2,089,802 151,234 816,121
Option Plan
4. Ratification of Independent Accountants 67,937,514 49,857 49,850 0
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
------- -----------------------
10.1 Amendment No. 2 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. 2 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.]
10.3 Amendment No. 3 to the License Agreement dated May 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.]
10.4 Gateway 2000, Inc. 1996 Long-Term Incentive Equity Plan. [Filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-08837) and incorporated by reference herein.]
10.5 Form of Agreement with respect to the 1996 Long-Term Incentive
Equity Plan. [Filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 333-08837) and incorporated by reference
herein.]
10.6 Gateway 2000, Inc. 1996 Non-Employee Directors Stock Option Plan.
[Filed as Exhibit 4.1 to the Company's Registration Statement on
Form S-8 (No. 333-08837) and incorporated by reference herein.]
10.7 Form of Agreement with respect to the 1996 Non-Employee Directors
Stock Option Plan. [Filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 333-08837) and incorporated
by reference herein.]
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: August 8, 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.
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND ARE THE SUBJECT OF A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED; UNREDACTED VERSION ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION
AMENDMENT NO. 2
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 C2 shall replace the existing Exhibit C2.
2. The attached Product information box shall replace the existing Product
information box in Exhibit C1.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
6. Windows(R) EN, DU, (h), (i), (j) Upgrade Royalty Uplift Royalty US$[*]
NT- FF, D, J (K) US$N/A US$[*]
Workstation
Version 3.51 Beginning [*] estimated quarterly
(x86/Pentium volumes of Windows NT-Workstation: [*]
Compatible
Version)
</TABLE>
3. The attached Additional Provision (k) shall be added to the ADDITIONAL
PROVISIONS KEY -- WINDOWS 95, WINDOWS, WINDOWS FOR WORKGROUPS, MS-DOS AND
WINDOWS NT-WORKSTATION Additional Provisions.
(k) For Customer Systems that include Windows NT-Workstation, and where at
the time of purchase, the end user requests MS-DOS or Enhanced Tools or
Windows or Windows for Workgroups ("Other OS Products") to be included with
that Customer System, GATEWAY may include one or more Other OS Products
preinstalled on the Customer System. For each Other OS Product distributed
with such Customer Systems, GATEWAY shall pay an additional royalty equal to
[*] the royalty for such Other OS Product stated in Exhibit C1.
4. The attached Exhibit C4 shall be added to the Agreement.
5. The following shall be added immediately after Section 2(a)(ii):
"and (iii) with respect to Product software in Sections 2(a)(i) and
2(a)(ii) and subject to Section 6(c), license GATEWAY's customers pursuant
to GATEWAY's end user license agreement ("EULA")."
GATEWAY's customers pursuant to GATEWAY's end user license agreement
("EULA").
6. The attached Section 4(b)(ii) shall supersede the existing Section
4(b)(ii):
MS warrants that the Product software if preinstalled on Customer Systems
by GATEWAY in accordance with the instructions included in the Product OPK
or if manufactured by the Authorized Replicator in accordance with the
instructions included in the Product ARK (Authorized Replicator Kit), as
applicable, will perform substantially in accordance with the
specifications contained in the Product documentation for a period of [*]
shipment of the Product software to GATEWAY's customer. Any implied
warranties on the Product software are limited [*] from shipment of the
Product to GATEWAY's customer.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
MS and its suppliers' entire liability and GATEWAY's exclusive remedy for
breach of the foregoing remedy shall be (a) a credit of the royalty paid to
MS for the Product software under Section 3 or (b) GATEWAY's cost to repair
or replace the defective Product software, but not to exceed the royalty
paid to MS for the Product software under Section 3. The limited warranty
above is void if failure of the Product software has resulted from
accident, abuse, or misapplication. Any replacement Product software will
be warranted for the remainder of the original warranty [*] whichever is
longer.
The parties acknowledge that the above limited warranty and remedies
reflect the limited warranty and remedies included in the current EULA for
the USA version of most Products as available from Authorized
Replicator(s). The above limited warranty and remedies shall be deemed
automatically amended to reflect different limited warranties and remedies
which may be included in EULA(s) for future licensed releases of the USA
version of Products and/or non-USA versions of Products, as applicable, as
available from Authorized Replicator(s).
7. 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 this
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/BENGT AKELND /s/WILLIAM M. ELLIOTT
- --------------------------------- --------------------------------------
By By
Bendt Akelnd William M. Elliott
- --------------------------------- --------------------------------------
Name (Print) Name (Print)
Director, OEM Sales Sr. Vice President and General Counsel
- --------------------------------- --------------------------------------
Title Title
[*] [*]
- --------------------------------- --------------------------------------
Date Date
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C2
WINDOWS 95 UPGRADE - PER COPY
*If royalty rate and Maximum Number of Units of Product are not specified for
a particular Product, then such Product is not licensed under this Agreement.
**Language Key: EN = English, FF = France French, D = German
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE ROYALTY/BASIS* MAXIMUM ADDED BY
PRODUCT NAME VERSION(S) ADDITIONAL NUMBER OF UNITS AMENDMENT
AND VERSION ** PROVISIONS OF PRODUCT* NUMBER
<S> <C> <C> <C> <C> <C>
Windows(r) EN, D, FF (a), (b), (c), [*] Copy N/A 1
95 (d), (e), (f), for English
Upgrade (g), (h), (i), version
[*] copy
for French and
German versions
</TABLE>
ROYALTY CALCULATION, ORDER, AND PAYMENT
1. GATEWAY agrees to pay MS the royalty rate set forth above for each copy of
Product distributed by GATEWAY.
ADDITIONAL PROVISIONS KEY
(a) GATEWAY agrees that it will not distribute Product until MS advises its
OEM customers generally that Customer Systems with Windows 95 may be
distributed.
(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 to an existing
authorized end-user of the Prior Product (as specified in the chart below)
distributed with any GATEWAY Customer System [*]
PRIOR PRODUCT PRODUCT
- ------------- -------
Windows 3.0, 3.1., 3.11 Windows 95 Upgrade
Windows for Workgroups 3.1, 3.11 Windows 95 Upgrade
(d) GATEWAY may only distribute the Product either (i) directly (without use
of dealers or other intermediaries) to end users, or (ii) as a mail order
fulfillment item directly (without use of dealers or other intermediaries) to
end users from GATEWAY or an MS designated fulfillment source.
(e) The packaging for the Product shall indicate that it is intended as an
"Upgrade" only (or similar wording) and not for use by a new customer.
(f) GATEWAY's license to distribute this Product shall expire [*]
(g) 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.
(h) GATEWAY agrees to provide Product Support at least comparable to that
provided for Product(s) supported by the industry in general. GATEWAY agrees
to provide MS[*] prior written notice of any substantive change in GATEWAY's
support policy for Windows 95.
(i) GATEWAY shall distribute [*] Product in Europe. Further, Product shall
not be advertised by GATEWAY and may only be offered after the sale of the
Customer System upon request of the customer as a means of customer
satisfaction.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C4
SAMPLER PRODUCTS
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE PER COPY LOCALIZATION ADDED BY
PRODUCT NAME AND VERSION(S) APM ADDITIONAL ROYALTY ADDITIONAL AMENDMENT
VERSION ** REQUIRED PROVISIONS * ROYALTY NUMBER
<S> <C> <C> <C> <C> <C> <C>
Games for EN Yes (a) [*] Not 2
Windows(R) Applicable
95
version 1.0
</TABLE>
*A Product is not licensed hereunder unless royalty rate(s) are indicated in
the Product table.
**Language Version Key: EN = USA English Only
"PER COPY" ROYALTY CALCULATION
For Product(s) specified as licensed for a particular Customer System on a
per copy basis in the Customer System table below:
(1) GATEWAY agrees to pay MS a royalty, at the applicable rate set forth
above, for each full or partial unit of Product licensed or distributed by
GATEWAY.
(2) In addition, GATEWAY agrees to pay MS the Localization Additional Royalty
specified above for each full or partial unit of localized (non-USA English)
versions of Product, if any, licensed or distributed by GATEWAY. Localized
versions are provided on an if and when available basis.
(3) 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 only one copy of Product software in addition to one copy of
Preinstalled Product Software in one language and Release for use on each
such Customer System.
ADDITIONAL PROVISIONS KEY
(a)
GATEWAY agrees to provide Product Support at least comparable to that
provided for Product(s) supported by the industry in general. GATEWAY agrees
to provide MS with [*] prior written notice of any substantive change in
GATEWAY's support policy for Windows 95.
CUSTOMER SYSTEMS
GATEWAY's Customer Systems shall be GATEWAY's assembled computer systems
which (i) are configured for use only by a single user; and (ii) include at
least a CPU, motherboard, power supply, hard disk drive, CD-ROM drive, and
case.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND ARE THE SUBJECT OF A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED; UNREDACTED VERSION ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION
AMENDMENT NO. 2
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, Inc. ("GATEWAY") dated [*] is
made and entered into this [*].
1. Notwithstanding anything to the contrary in the Agreement (including
without limitation Sections 2 and 6), GATEWAY may distribute any licensed
version or edition of Office Professional for Windows, Office Professional
for Windows with Bookshelf, Office Standard for Windows and Office for
Windows 95 (collectively, "Office Products") with applicable Customer
Systems ("Office Customer Systems") only (i) directly to end users as a
mail order fulfillment item received directly from GATEWAY or a GATEWAY
designated fulfillment source or (ii) directly to end user customers by
GATEWAY's distributors, value added resellers, system integrators,
corporate account resellers, mail order companies and other companies that
do not display computer systems for sale to the general public
(collectively, "GATEWAY Distributors") or (iii) in those countries in which
mail order fulfillment is not reasonably available as mutually agreed upon
by MS and GATEWAY in writing, to end users through GATEWAY Distributors
which do not display Office Customer Systems for sale to the general public
or (iv) directly to end users from GATEWAY "Showrooms" located in the
European Community and Australia, provided that 1) Customer Systems
distributed with Office Products not be advertised or promoted as available
for retail purchase from such locations; and 2) the number of Office
Products distributed in this manner shall not exceed [*] of the total
number of Office Products distributed monthly in Australia and individual
countries within the European Community, respectively. GATEWAY acknowledges
and agrees that Office Products may not be distributed through any of the
following channel segments as defined in International Data Corporation's
"US PC Distribution Channels Forecast, [*]): (A) Computer Specialty
Retailers, (B) Computer Superstores, (C) Mass Merchants, (D) Consumer
Electronic Retailers, (E) Office Product Dealers, (F) GATEWAY "Showrooms",
except as permitted above or (G) Others (e.g., distributors that sell
directly to any of the following: end users, liquidators, home shopping
networks and on-line buying services). Notwithstanding the foregoing,
GATEWAY may distribute refurbished Office Customer Systems from a limited
number of locations to be agreed upon by MS and GATEWAY in writing, in
which such refurbished Office Customer Systems are displayed for sale to
the general public.
2. The attached Exhibit C shall replace the existing Exhibit C.
3. The attached Exhibit C1, C2 and C3 shall be added to the Agreement.
4. Notwithstanding anything to the contrary in the Agreement, the price
charged GATEWAY for Office for Windows 95, Professional Edition or Office
for Windows 95, Professional Edition with Bookshelf at any time during the
term of the Agreement will be no higher than the price charged by MS to any
person who purchased the same or lesser amount of such Product per unit of
time, per language and per individual country, from MS as has GATEWAY.
5. Section 5(a) and 5 (b) shall be deleted and replaced with the following:
(a) MS will defend and pay all damages and costs finally awarded against
GATEWAY arising from any action brought against GATEWAY to the extent
that it is based on a claim that (i) any Product infringes any trade
secret in the United States or Canada; any duly issued patent in those
countries listed under "Patents" in Exhibit D or any duly issued
copyright in those countries listed under "Copyrights" in Exhibit D;
or (ii) any Product name or trademark ("Marks") infringe any trademark
rights enforceable in those countries listed in Exhibit D; provided
that MS is promptly informed in writing and furnished a copy of each
communication, notice or other action relating to the alleged
infringement and is given authority, information and assistance (at
MS's expense) necessary to defend or settle such claim and sole
control over defense and settlement.
(b) This section intentionally left blank.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
6. "Section 2. LICENSE GRANT. (a)" shall be deleted and replaced with the
following:
(a) MS grants to GATEWAY the non-exclusive rights to: (i) install no more
than one (1) copy of Product software on each Customer System hard
disk or ROM ("Preinstalled Product Software"); and (ii) directly or
indirectly distribute to end users (in addition to Preinstalled
Product Software) no more than one (1) copy of each of Product
software and Product documentation with each Customer System. Except
as otherwise provided in Exhibit C with respect to a particular
Product, such rights shall be limited to Products distributed in the
United States, Canada, European Community, Australia and other
countries as approved by MS. Except as necessary to install Product
software, GATEWAY may not reproduce Product. GATEWAY may supplement
but shall not modify or translate Product documentation.
7. "Section 2(c) shall be replaced with the following:
(c) GATEWAY may grant to GATEWAY Subsidiaries the foregoing rights subject
to the terms and conditions set forth in this Agreement. GATEWAY
hereby guarantees each of its GATEWAY Subsidiaries' compliance with
the terms and conditions of this Agreement. Upon such time that each
new GATEWAY Subsidiary has executed and delivered to MS the GATEWAY
Subsidiary Agreement in the form indicated in Exhibit X, such GATEWAY
Subsidiary may exercise any license rights or receive any confidential
information under this Agreement.
8. The attached Exhibit X shall replace the existing Exhibit X.
9. Section 9 shall be replaced with the following:
9. TERM OF AGREEMENT.
The initial term of this Agreement ("Initial Term") shall run from the
Effective Date until [*]
10. Exhibit B shall be replaced with the following:
EXHIBIT B
MINIMUM COMMITMENT PAYMENTS
FIRST PERIOD OF THIS AGREEMENT
DATE PAYMENT AMOUNT (US$)
Signing of this Agreement
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
SECOND PERIOD OF THIS AGREEMENT
DATE PAYMENT AMOUNT (US$)
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
[*] [*]
Payments shall be due as specified in Section 3(d) of this Agreement.
11. 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 within [*] of receipt 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
/s/JAN E. CLAESSON /s/RICHARD D. SNYDER
- -------------------------------- -----------------------------------
By By
Jan E. Claesson Richard D. Snyder
- -------------------------------- -----------------------------------
Name (Print) Name (Print)
Director, OEM Executive Vice President & COO
- -------------------------------- -----------------------------------
Title Title
[*] [*]
- -------------------------------- -----------------------------------
Date Date
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C
*If royalty rate and Customer System are not specified for a particular
Product, then such Product is not licensed under this Agreement.
**Language Key:, EN=English, FR=French, D=German, J=Kanji, Z=International
English, DU=Dutch
<TABLE>
<CAPTION>
NON-US
ENGLISH OR
INTERNATIONAL
LANGUAGE APPLICABLE CUSTOMER ROYALTY/BASIS ENGLISH
PRODUCT NAME AND PRODUCT VERSION(S) APM ADDITIONAL SYSTEM (PER SYSTEM OR ADDITIONAL
VERSION TYPE ** REQUIRED PROVISIONS NUMBER* PER COPY)*+ ROYALTY
APPLICATION PRODUCTS
<S> <C> <C> <C> <C> <C> <C> <C>
Office Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] N/A
Professional Replication (d),(m) per copy
4.X for Windows
with Bookshelf(TM)
Office for Windows Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] N/A
95, Professional Replication (d),(m),(q) per copy
Edition with
Bookshelf
Office Professional Authorized D, FR, Z Yes (a),(b),(c), 1,2,3,4 [*] [*]
4.X for Windows Replication (d),(n) per copy; English
[*] per Royalty
copy for
Product
distributed in
Australia
Office for Windows Authorized D, FR, Z, Yes (a),(b),(c), 1,2,3,4 [*] [*]
95, Professional Replication DU (d),(n) per copy; English
Edition [*] per Royalty
copy for
Product
distributed in
Australia
Office Standard Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] per
4.X for Windows Replication (d) copy (effective)
[*]
through [*]
[*]
Word for Windows Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] per
2.0 and 6.0 Replication (d) copy (effective)
[*]
through [*]
[*]
Excel 4.0 and 5.0 Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] per
Replication (d) copy (effective)
[*]
through [*]
[*]
Project 4.X Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] per
Replication (d) copy (effective)
[*]
through [*]
[*]
Powerpoint 4.0 Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] per
Replication (d) copy (effective)
[*]
through [*]
CONSUMER APPLICATIONS
Works for Authorized EN, D, FR, Yes (a),(b),(c), 1,2,3,4 US [*] [*]
Windows (TM) 95 Replication Z, J, DU (d),(t) [*] English
royalty
Works for Authorized EN Yes (a),(b),(c), 1,2,3,4 US [*]
Windows (TM) 95 Replication (d),(t) copy
Multimedia Edition
with Bookshelf
Works Version 3.0 Authorized EN, FR, D, Yes (a),(b),(c), 1,2,3,4 (j),(k) [*]
for Windows(TM) Replication Z, DU, J (d),(j),(k), [*] per English
(l)(t) Suite, [*] royalty
per copy
Works Version 3.0 Authorized EN Yes (a),(b),(c), 1,2,3,4 S [*]
for Windows(TM) Replication (d),(l),(t) copy
Multimedia Edition
Money Version 3.0 Authorized EN, FR, D, Yes (a),(b),(c), 1,2,3,4 (j)(k)[*] N/A
and Money for Replication Z (d),(j),(k), per Suite
Windows 95 (l),(m),(n), (l)US [*]
per Suite
(m) [*]
per Suite
(n) [*]
per Suite plus
[*]
Publisher Version Authorized EN, FR, D, Yes (a),(b),(c), 1,2,3,4 (j),(k) N/A
2.0 and Publisher Replication Z, DU (d),(j),(k) [*] per
for Windows 95 Suite
Publisher Version Authorized EN Yes (a),(b),(c), 1,2,3,4 [*]
2.0 CD Edition Replication EN Yes (d) 1,2,3,4 copy
and (a),(b),(c),
Publisher Design (d),
Pack Authorized
Version 1.0 Replication
Best of OEM EN No (a),(b),
Entertainment Replication (c),(d)
Pack
Productivity Pack OEM EN, FR, D No (a),(b),
for Windows(TM) Replication (c),(d),
Version 1.0
Golf Version 1.0 OEM FR, D No (a),(b),(c), 1,2,3,4 (j)(k) N/A
and 2.0 Replication (d),(j),(k) [*]
Suite
Golf Version 1.0 Authorized EN Yes (a),(b),(c), 1,2,3,4 N/A
and 2.0 Multimedia Replication (d),
Edition
Complete Baseball Authorized EN Yes (a),(b),(c), 1,2,3,4 N/A
1.0 Multimedia Replication (d),
Edition 1994 and
1995
Bookshelf(R) CD- Authorized EN Yes (a),(b),(c),
ROM Reference Replication (d),(e),(f),
Library for (g),
Windows(TM) 1994
and 1995 Edition
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
Multimedia Authorized EN, D Yes (a),(b),(d), 1,2,3,4 [*]
Beethoven: The Replication (e),(k) per suite
Ninth Symphony
Version 1.0
Multimedia Authorized EN Yes (a),(b),(d),
Mozart: The Replication (e)
Dissonant
Quartet
Version 1.0
Multimedia Authorized EN Yes (a),(b),(d),
Schubert: The Replication (e)
Trout Quintet
Version 1.0
Multimedia Authorized EN Yes (a),(b),(d),
Stravinsky: The Replication (e)
Rite of Spring
Version 1.0
Encarta(TM) Authorized EN Yes (a),(b),(c), 1,2,3,4 [*] NA
1994, Replication (d),(e) copy
1995 and 1996
Editions
Musical Authorized EN, FR, Z Yes (a),(b),(d), 1,2,3,4 (j) [*]
Instruments Replication (e),(j) per Suite
Cinemania(R) Authorized EN Yes (a),(b),(c), 1,2,3,4 [*]
Interactive Replication (d),(e) copy
Movie
Guide 1994, 1995
and 1996 Editions
SoundBits(TM) Authorized EN Yes (a),(b),(d),
(Musical Sounds Replication (e)
From Around the
World)
Version 1.0
SoundBits(TM) Authorized EN Yes (a),(b),(d),
(Classic Replication (e)
Hollywood
Movies)
Version 1.0
SoundBits(TM) Authorized EN Yes (a),(b),(d),
(Classic Cartoons Replication (e)
from Hanna
Barbera)
Version 1.0
National Gallery Authorized EN Yes (a),(b),(d),
of Art Replication (e)
Version 1.0
Creative Writer Authorized EN, FR, D, Yes (a),(b),(d), 1,2,3,4 (j) (k) U.S.
Replication Z (e),(j),(k) [*]
Works for Authorized EN Yes (a),(b),(d), 1,2,3,4 U.S. [*]
Windows 3.0, Replication copy
Publisher 2.0 (effective)
and [*]
Money 3.0
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
Dinosaurs Authorized EN Yes (a),(b),(d), [*]
Version 1.0 Replication (e) copy
Fine Artist Authorized EN Yes (a),(b),(c), 1,2,3,4
Replication (d),(e)
Flight Simulator Authorized EN Yes (a),(b),(c), 1,2,3,4 [*]
5.0 Replication (d),(e) copy
Bob Authorized EN Yes (a),(b),(d), 1,2,3,4 [*]
Replication (e),(o) copy
Dangerous Authorized EN Yes (a),(b),(d), 1,2,3,4
Creatures Replication (e)
Ancient Lands Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Automap Authorized EN Yes (a),(b),(d), 1,2,3,4 [*]
Replication (e),(p) copy
Magic School Authorized EN Yes (a),(b),(d), 1,2,3,4
Bus- Replication (e)
Human Body
Magic School Authorized EN Yes (a),(b),(d), 1,2,3,4
Bus- Replication (e)
Solar System
Haunted House Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Explorapedia Authorized EN Yes (a),(b),(d), 1,2,3,4
Nature Replication (e)
Explorapedia Authorized EN Yes (a),(b),(d), 1,2,3,4
World of People Replication (e)
Scenes-Flight Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Scenes-Sports Authorized EN Yes (a),(b),(d), 1,2,3,4
Extremes Replication (e)
Scenes-Undersea Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Scenes-Brain Authorized EN Yes (a),(b),(d), 1,2,3,4
Twister Replication (e)
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
Entertainment Authorized EN Yes (a),(b),(d), 1,2,3,4
Packs 1, 2, 3, 4 Replication (e)
Wine Guide Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
500 Nations Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Jullia Childs- Authorized EN Yes (a),(b),(d), 1,2,3,4
Cooking Replication (e)
Dogs Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Composer Series Authorized EN Yes (a),(b),(d), 1,2,3,4
Replication (e)
Music Central Authorized EN Yes (a),(b),(d), 1,2,3,4
1996 Replication (e)
</TABLE>
+Royalty for Product distributed as part of Suites (h) and (i) shall be as
specified in additional provisions.
"PER COPY" ROYALTY CALCULATION
For Product(s) which specify "per copy" in the Royalty/Basis column in the
above table:
(1) GATEWAY agrees to pay MS a royalty, at the applicable rate set forth above,
for each full or partial unit of Product licensed or distributed by
GATEWAY.
(2) In addition, GATEWAY agrees to pay MS the Non-English Additional Royalty
specified above for each full or partial unit of non-English versions of
Product licensed or distributed by GATEWAY.
(3) Where multiple "Releases" (i.e., Update Releases, Version Releases, Product
Releases or editions) or language versions of a Product are licensed for
the same Customer Systems, GATEWAY may distribute only one copy of Product
software in addition to one copy of Preinstalled Product Software in one
language and Release for use on each such Customer System.
(4) Non-English in the "Non-English Additional Royalty" column shall mean all
languages except U.S. English and International English.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
ATTACHMENT TO EXHIBIT C
APPLICATION PRODUCTS BACKUP CD OPTION
FOR PRODUCTS IN EXHIBIT C
(a) This Attachment is not a license for MS products. GATEWAY must maintain a
valid OEM license agreement for all MS products included in whole or in
part on the Backup CD (as defined below).
(b) For Customer Systems which include a CD-ROM drive in the Customer System
package, GATEWAY may distribute, in lieu of a separate copy of the Product
software as provided in Section 2(a)(ii) of the Agreement, a single CD-ROM
which includes a single copy of the Product software for two or more of the
Microsoft application product(s) distributed by GATEWAY preinstalled on the
hard disk of the Customer System ("Backup CD").
(c) MS' authorization to distribute the Backup CD is subject to GATEWAY's
compliance with all of the following provisions:
(1) The Backup CD shall comply with the specifications set forth in the
then-current "Microsoft OEM Backup and Recovery CD-ROM Implementation
Guide" (the "Implementation Guide"). MS shall have the right to modify
the Implementation Guide from time to time and provide GATEWAY updated
versions thereof.
(2) GATEWAY shall comply with all provisions of this Agreement as well as
any other MS license agreements which govern GATEWAY's distribution of
any of the MS application products included on the Backup CD,
including, without limitation, the Additional Provisions of the
applicable Exhibit(s) C for such MS products.
(3) The Backup CD shall include only Microsoft applications Product
software; it shall not contain any non-Microsoft products except for
drivers and tools, if any, required for execution of Product software
on Customer Systems.
(4) The Backup CD may be replicated only by an Authorized Replicator.
(5) The Backup CD may only be distributed inside the original Customer
System package. GATEWAY shall also include inside the Customer System
package the APM specified by MS for distribution with the Backup CD in
lieu of the APMs for the individual products.
(6) GATEWAY shall submit the Backup CD master media contemporaneously to a
single Authorized Replicator of GATEWAY's choice and to MS for review
and approval. MS must immediately give written notice to GATEWAY in
the event that the Backup CD or a portion thereof, is not in
compliance with MS's Backup CD guidelines. If within [*] [*] of
GATEWAY's submission, MS fails to notify GATEWAY of such
non-compliance, GATEWAY shall be permitted to notify Authorized
Replicator to begin replication.
(d) MS shall have the right to terminate or restrict GATEWAY's rights to
replicate and/or distribute a Backup CD upon thirty (30) days prior written
notice to GATEWAY. Without limiting the generality of the preceding
sentence, MS may terminate or restrict such replication and distribution
rights by product(s), by market(s) to which Backup CD may be distributed,
or by Customer System.
(e) GATEWAY hereby indemnifies MS from and against all damages, costs and
attorneys' fees arising from any and all claims or demands in connection
with the licensing, distribution, or use of the Backup CD, to the extent
such claims could have been avoided by GATEWAY's distribution of standard
Product media.
(f) GATEWAY agrees to provide Product Support at least comparable to that
provided for Product(s) supported by the industry in general. GATEWAY
agrees to provide MS with [*] written notice of any substantive change in
GATEWAY's support policy for the Product(s).
(g) Provided GATEWAY complies with all of the requirements stated above,
GATEWAY may include the Backup CD inside GATEWAY's Customer System package
without payment of additional royalties to MS.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
CUSTOMER SYSTEMS
GATEWAY's Customer Systems shall be defined to be GATEWAY's single user
computer systems which GATEWAY designates in print and/or other media for
distribution with Products. Each such computer system must (i) include one of
the below designated microprocessor types (i.e. 80486, Pentium or Pentium Pro);
(ii) be one of the below designated models (i.e. Desktop or Portable) and (iii)
must be advertised by specific configuration (i.e. RAM, disk storage and such
other features deemed appropriate by GATEWAY). Any such computer system shall be
deemed "designated" by GATEWAY at such time that GATEWAY advertises such
computer system accompanied by product(s) in print and/or other media and shall
remain designated a Customer System for which GATEWAY pays a royalty for such
duration as GATEWAY deems appropriate.
<TABLE>
<CAPTION>
MICROPROCESSOR TYPE MODEL(S)
- ------------------- --------
<S> <C>
1. 80486+ Desktop Models (Professional series, Family PC, and other desktop
models advertised in print and/or other media)
2. 80486+ Portable Models (Colorbook series, Liberty series, and other models
advertised in print and/or other media)
3. Pentium Desktop Models (Professional series, Family PC, and other desktop
models advertised in print and/or other media)
4. Pentium Portable Models (Solo series and other models advertised in print
and/or other media)
5. Pentium Pro Desktop Models (Professional series, Family PC, and other desktop
models advertised in print and/or other media)
6. Pentium Pro Portable Models (Models shall be added upon advertised in print and/or
other media)
</TABLE>
+Intel microprocessors, or non-Intel microprocessors that execute the same
instruction sets.
GATEWAY reserves the right to update and modify models.
EXHIBIT C
(CONTINUED)
GATEWAY BRAND NAMES AND TRADEMARKS:
If GATEWAY markets, licenses, or distributes GATEWAY Customer Systems under
brand names and trademarks other than GATEWAY's name, those brand names and
trademarks are listed below:
1.
2.
3.
4.
ADDITIONAL PROVISIONS
(a) GATEWAY shall prominently place GATEWAY's name and/or logo on each
Product package.
(b) GATEWAY shall include a MS Product registration card with each copy of
Product distributed by GATEWAY.
(c) Notwithstanding Section 2(e) of the Agreement, GATEWAY shall provide a
copy of the related Product documentation with any Customer System
distributed with this Product software.
(d) (i) In consideration of the applicable royalty, GATEWAY shall provide
Preinstalled Product Software on all Customer Systems with which
Product is distributed except for up [*] Customer Systems per month.
(ii) With respect to each Customer System model, GATEWAY shall market
and distribute no more than [*] of Suite of Products with any such
Customer System model.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(iii) Additionally, GATEWAY shall not be obligated to pay MS a royalty
for up to [*] of its cumulative Customer Systems shipments, provided
that such Customer Systems are not distributed with Product. In
addition, GATEWAY may exclude from royalty calculations Customer
Systems delivered pursuant to bid quotations of at [*] Desktops and
[*] portables for shipment within [*] of award of contract, provided
that such Customer Systems are not distributed with Product(s).
(e) Use of Product content for marketing/advertising purposes may be
subject to restrictions which will be provided by MS.
(f) In preparing promotional materials for the Product or any Product
component, GATEWAY may refer to Product components (e.g., The American
Heritage Dictionary and Electronic Thesaurus, The World Almanac(R) and
Book of Facts, The Concise Columbia Encyclopedia, and The Concise
Columbia Dictionary of Quotations) only following an immediately
preceding reference to the Product name. GATEWAY may not refer to
Product components without reference to the Product name. By way of
illustration, GATEWAY materials may state "Microsoft Bookshelf"
followed by "featuring The American Heritage Dictionary and Electronic
Thesaurus, The World Almanac(r) and Book of Facts, The Concise
Columbia Encyclopedia, and The Concise Columbia Dictionary of
Quotations", but such materials may not merely state "The American
Heritage Dictionary and Electronic Thesaurus, The World Almanac(R) and
Book of Facts, The Concise Columbia Encyclopedia, and The Concise
Columbia Dictionary of Quotations".
(g) In preparing user documentation and promotional material for material
licensed from Houghton Mifflin GATEWAY:
1. may not make use of Houghton Mifflin logos, trade dress, or
trademarks unless separately approved by Houghton Mifflin; and
2. may not reproduce illustrations from or photographs of pages from
print versions of "The American Heritage Dictionary" unless
separately approved by Houghton Mifflin. GATEWAY may select
excerpts from definitions contained in the A to Z list for "The
American Heritage Dictionary" so long as it avoids trademarks,
arguable trademarks, and words that might be offensive or
controversial to some users.
(h) GATEWAY shall pay MS a royalty which shall entitle GATEWAY to
distribute [*] of an agreed upon Suite of Products in UK English or
U.S. English for shipment into the United Kingdom and Europe. The
agreed upon Suite of Products shall be designated on a periodic basis
and shall be added to below Suite of Products. In the event the
parties are unable to agree on a replacement Suite, the Suite then in
effect shall remain in effect including subsequent Update and Version
releases of Suite Products until MS and GATEWAY agree to a replacement
Suite. All Products below are U.S. English unless otherwise noted. The
first Suite shall be:
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(1) Money Version 3.0 (UK English), Golf Version 1.0 Multimedia
edition, MS Publisher Version 2.0 (UK English), Musical
Instruments and MS Works Version 3.0 for Windows (UK English).
The agreed upon [*] (2) The agreed upon second Suite shall
be: Money Version 3.0 (UK English), Golf Version 1.0 or 2.0
Multimedia edition, MS Publisher Version 2.0 (UK English),
Musical Instruments, MS Works for Windows 3.0 (UK English) and
Creative Writer (UK English). The agreed upon [*] (3) The agreed
upon third Suite shall be: MS Works for Windows 3.0 (UK English)
or MS Works Version 4.0 for Windows 95 (UK English), Encarta
Encyclopedia 1996 Edition for Windows, Cinemania 1996 for
Windows, Money Version 3.0 for Windows (UK English) or Money
Version 4.0 for Windows 95 (UK English), Bob Version 1.0 for
Windows, Publisher Version 2.0 (UK English) Publisher CD Deluxe
for Windows 95 (UK English), Golf Version 2.0 Multimedia edition,
Music Central 96 for Windows, Julia Childs: Home Cooking with
Master Chefs for Windows. Entertainment Packs 1, 2, 3 and 4.
GATEWAY shall pay [*] for the third Suite.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(i) GATEWAY shall pay MS a royalty which shall entitle GATEWAY to
distribute [*] of an agreed upon Suite of Products in U.S. English.
The agreed upon Suite of Products and royalty shall be designated on a
periodic basis and shall be added to the below Suite of Products. In
the event the parties are unable to agree on a replacement Suite, the
Suite then in effect shall remain in effect including later Update and
Version releases until MS and GATEWAY agree to a replacement Suite.
Such replacement Suites shall become effective upon first shipment.
The Suites shall be as follows:
(1) The first Suite shall be: Money Version 3.0, Encarta 1994 Edition,
Complete Baseball 1.0 Multimedia Edition, Golf Version 1.0 Multimedia
Edition and MS Works Version 3.0 for Windows, Multimedia Edition (or
MS Works Version 3.0 for Windows). GATEWAY shall pay [*] for the first
Suite. (2) The agreed upon second Suite shall be: MS Works Version 3.0
for Windows, Multimedia Edition (or MS Works Version 3.0 for Windows),
Encarta 1994 or 1995 Edition, Golf Version 1.0 or 2.0 Multimedia
Edition, MS Cinemania 1994 or 1995 Edition, Fine Artist and Money
Version 3.0. GATEWAY shall pay [*] for the second Suite. (3) The
agreed upon third Suite shall be: MS Works Version 3.0 for Windows,
Multimedia Edition (or MS Works Version 3.0 for Windows), Encarta 1994
or 1995 Edition, MS Cinemania 1994 or 1995 Edition, Money Version 3.0,
Composer Series, Bob 1.0, Wine Guide, Bookshelf 1994 Edition,
Publisher Version 2.0 CD Edition and Publisher Design Pack Version
1.0, Arcade 1.0, Dinosaurs and Entertainment Packs 1, 2, 3 and 4.
GATEWAY shall pay [*] for the third Suite. (4) The agreed upon fourth
Suite shall be: MS Works Version 4.0 for Windows 95, (or MS Works
Version 4.0 for Windows 95), Encarta Encyclopedia 1996 Edition for
Windows, MS Cinemania 1996 for Windows, Money Version 4.0 for Windows
95, Bob Version 1.0 for Windows, Publisher CD Deluxe for Windows 95,
MS Multimedia Golf Version 2.0 for Windows, MS Music Central 96 for
Windows, Julia Childs: Home Cooking with Master Chefs for Windows,
Entertainment Packs 1, 2, 3 and 4. GATEWAY shall pay [*] for the
fourth Suite.
(j) GATEWAY shall pay MS [*] royalty which shall entitle GATEWAY to
distribute [*] of an agreed upon Suite of Products in French. The
agreed upon Suite of Products shall be designated on a periodic basis.
In the event the parties are unable to agree on a replacement suite,
the Suite then in effect shall remain in effect including later
versions until MS and GATEWAY agree to a replacement Suite. The first
Suite shall be: Money Version 3.0, Golf Version 1.0, MS Publisher
Version 2.0, Musical Instruments and MS Works Version 3.0 for Windows.
The agreed upon second Suite shall be: Money Version 3.0, Golf Version
1.0 or 2.0, MS Publisher Version 2.0, Musical Instruments, MS Works
Version 3.0 for Windows and Creative Writer. Such Suite of Products
will become effective upon first shipment.
(k) GATEWAY shall pay MS [*] royalty which shall entitle GATEWAY to
distribute [*] of an agreed upon Suite in the German versions of
Products. The agreed upon Suite of Product shall be designated on a
periodic basis. In the event the parties are unable to agree on a
replacement Suite, the Suite then in effect shall remain in effect and
shall include later versions. The first Suite shall be: MS Works
Version 3.0 for Windows, Golf Version 1.0, MS Publisher Version 2.0,
Money Version 3.0 and Beethoven. The agreed upon second Suite shall
be: MS Works Version 3.0 for Windows, Golf Version 1.0 or 2.0, MS
Publisher Version 2.0, Money Version 3.0, Beethoven and Creative
Writer. Such Suite of Products will become effective upon first
shipment.
(l) GATEWAY shall pay MS [*] royalty which shall entitle GATEWAY to
distribute [*] copy of Works for Windows 3.0 Multimedia Edition (or MS
Works Version 3.0 for Windows) and [*] of Money Version 3.0 with
Customer Systems.
(m) GATEWAY shall pay MS [*] royalty which shall entitle GATEWAY to
distribute [*] U.S. English and International English versions of
Office Professional with Bookshelf and Money Version 3.0 with Customer
Systems. Such shipments shall be limited to the U.S., Canada and
United Kingdom. GATEWAY shall be entitled to ship [*] of Office
Professional with Bookshelf and [*] of Money with such Customer
Systems. Notwithstanding the foregoing, the royalty for Customer
Systems shipped with U.S. English versions of Office Professional with
Bookshelf and Money 3.0 shall [*] until [*] 95 or until the first
shipment of Office Professional 95 version, whichever occurs first.
Thereafter, [*].
(n) GATEWAY shall pay MS [*] royalty which shall entitle GATEWAY to
distribute non-U.S. English or non-International English versions of
Office Professional and Money Version 3.0 with Customer Systems.
GATEWAY shall be entitled to [*] of Office Professional and [*] of
Money with such Customer Systems.
(o) MS Bob may be distributed only with any existing Suite of Products for
the additional royalty shown or as a component of a replacement Suite
as described in note (i).
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
(p) GATEWAY shall pay [*] on all Solo Customer Systems distributed in
United States of America and Canada upon the first shipment of such
Customer Systems with the Product.
(q) GATEWAY shall pay [*] and may distribute desktop "Anniversary Edition"
PC Systems with Office for Windows 95, Professional Edition with
Bookshelf 95 and Money 4.0 for Windows 95 and all or a portion of the
Suite of Consumer Applications Products described in note (i) above,
provided that: * Gateway only offer such with its Anniversary Edition
PC. * Gateway include the MS CD Sampler when available, with its
Anniversary Edition PC. * the above royalty shall apply only to [*]
the Customer Systems GATEWAY distributes and such pricing shall expire
[*] regardless of the number Customer Systems distributed. Thereafter,
GATEWAY shall [*] for a Customer System to be designated by GATEWAY
and shipped with Office for Windows 95, Professional Edition with
Bookshelf 95 and Money 4.0 for Windows 95 and the Products listed in
note (i). Such royalty shall apply only to those Customer Systems that
are advertised and marketed with the above Products in print
publications.
(s) GATEWAY may offer as an "upsell" all the Products listed in note
(i)(3) and (i)(4), except Works and Money, to those customers that
purchase Customer Systems offered with Office for Windows 95,
Professional Edition with Bookshelf 95 and Money 4.0 for Windows 95.
Such offers may be made provided that: * offers are made only to North
America customers. * offers are made only at the time of sale and not
any time thereafter. * price, time, delivery or performance on such
Products is not advertised in any media. * Products in note (i) shall
be bundled with a hardware component (e.g. joystick) to be determined
by GATEWAY. Royalties are as follows:
(1) [*]
(2) [*]
(t) In addition to countries listed in Section 2, GATEWAY may distribute
this Product in Japan, Malaysia, Singapore, Thailand, Korea, and
Indonesia.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C1
OFFICE FOR WINDOWS 95, PROFESSIONAL EDITION WITH
BOOKSHELF 95 - UPGRADE - PER COPY
*If royalty rate and Maximum Number of Units of Product are not specified for
a particular Product, then such Product is not licensed under this Agreement.
**Language Key: EN = English
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE ROYALTY/BASIS* MAXIMUM ADDED BY
PRODUCT NAME AND VERSION(S) ADDITIONAL NUMBER OF UNITS AMENDMENT
VERSION ** PROVISIONS OF PRODUCT* NUMBER
<S> <C> <C> <C> <C> <C>
Office for Windows EN (a), (b), (c), [*] per N/A 2
95, (d), (e), (f), Copy
Professional Edition (g), (h), (i)
with Bookshelf 95 -
Upgrade
</TABLE>
ROYALTY CALCULATION, ORDER, AND PAYMENT
1. GATEWAY agrees to pay MS the royalty rate set forth above for each copy of
Product distributed by GATEWAY.
ADDITIONAL PROVISIONS KEY
(a) GATEWAY agrees that it will not distribute Product until MS advises its
OEM customers generally that Customer Systems with Office for Windows 95,
Professional Edition with Bookshelf 95 may be distributed.
(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 to an existing
authorized GATEWAY end-user of the Prior Product.
PRIOR PRODUCT
Office, Standard and Professional Editions, all versions
Works, Word, Excel, Powerpoint, Access, all versions
PRODUCT
Office for Windows 95, Professional Edition with Bookshelf 95 - Upgrade
version
Office for Windows 95, Professional Edition with Bookshelf 95 - Upgrade
version
(d) GATEWAY may only distribute the Product either (i) directly (without use
of dealers or other intermediaries) to end users, or (ii) as a mail order
fulfillment item directly (without use of dealers or other intermediaries) to
end users from GATEWAY or an MS designated fulfillment source.
(e) The packaging for the Product shall indicate that it is intended as an
"Upgrade" only (or similar wording) and not for use by a new customer.
(f) GATEWAY's license to distribute this Product shall [*]
(g) 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.
(h) GATEWAY agrees to provide Product support at least comparable to that
provided for Product(s) supported in the industry in general. GATEWAY agrees
to provide MS with [*] prior written notice of any substantive change in
GATEWAY's support policy for Windows 95.
(i) This Product may only be distributed to GATEWAY end user customers
located within the geographical boundaries of the United States of America
and Canada.
Exhibit to the License Agreement dated [*] between MICROSOFT CORPORATION and
GATEWAY 2000 CORPORATION.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C2
OFFICE FOR WINDOWS 95, PROFESSIONAL EDITION WITH BOOKSHELF
OFFICE FOR WINDOWS 95, PROFESSIONAL EDITION
**Language Key: EN = English
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE ROYALTY/BASIS* ADDED BY
PRODUCT NAME AND VERSION(S) ADDITIONAL AMENDMENT
VERSION ** PROVISIONS NUMBER
<S> <C> <C> <C> <C>
Office(R) for Windows EN (a), (b), (c), [*] 2
95, Professional (d), (e), (f), per copy
Edition with Bookshelf (g),
Office(R) for Windows EN (a), (b), (c), [*] 2
95, Professional (d), (e), (f), per copy
Edition (g),
</TABLE>
ROYALTY CALCULATION, ORDER, AND PAYMENT
1. MS will not charge GATEWAY a royalty for Product delivered under this
Amendment.
2. GATEWAY agrees to pay for Cost of Goods and Shipping and Handling for
Product. GATEWAY may charge end-users a reasonable shipping and handling
fee for Product.
ADDITIONAL PROVISIONS KEY
(a) 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.
(b) For purposes of this Exhibit C, "Customer System" shall mean GATEWAY
computer systems which GATEWAY can conclusively establish: (i) were
distributed with the Prior Product (as specified in the chart in Additional
Provision (c) of this Exhibit) during the period beginning [*] and ending
[*] in compliance with a valid OEM license agreement between GATEWAY and
MS; and (ii) were marketed and distributed by GATEWAY.
(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 to an existing
authorized end-user of the Prior Product (as specified in the chart below)
on a Customer System.
PRIOR PRODUCT
Office Professional Version 4.x for Windows
Office Professional w/Bookshelf Version 4.x for Windows
PRODUCT
Office Professional Version 7.0 for Windows 95 Upgrade
Office Professional w/Bookshelf Version 7.0 for Windows 95 Upgrade
(d) GATEWAY may only distribute the Product either (i) directly (without use
of dealers or other intermediaries) to end users, or (ii) as a mail order
fulfillment item directly (without use of dealers or other intermediaries) to
end users from GATEWAY or an MS designated fulfillment source.
(e) GATEWAY's license to distribute this Product shall [*]
(f) GATEWAY shall acquire the Product through one Authorized Replicator
designated by MS.
(g) This Product may only be distributed to end user customers located within
the geographical boundaries of the United States of America and Canada.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT C3
OFFICE FOR WINDOWS 95, PROFESSIONAL EDITION UPGRADE
**Language Key: FR=French, D=German, Z=International English
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE ROYALTY/BASIS* MAXIMUM ADDED BY
PRODUCT NAME AND VERSION(S) ADDITIONAL NUMBER OF UNITS AMENDMENT
VERSION ** PROVISIONS OF PRODUCT NUMBER
<S> <C> <C> <C> <C> <C>
Office(R) for FR, D, Z (a), (b), (c), [*] [*] 2
Windows (d), (e), (f), per copy
95, Professional (g),
Edition
</TABLE>
ROYALTY CALCULATION, ORDER, AND PAYMENT
1. MS will not charge GATEWAY a royalty for the [*] shipped under the terms
and conditions below. Thereafter, the royalty shall [*] copy shipped.
2. GATEWAY agrees to pay for Cost of Goods and Shipping and Handling for
Product. GATEWAY may charge end-users a reasonable shipping and handling fee
for Product.
ADDITIONAL PROVISIONS KEY
(a) 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.
(b) For purposes of this Exhibit C, "Customer System" shall mean GATEWAY
computer systems which GATEWAY can conclusively establish: (i) were distributed
with the Prior Product (as specified in the chart in Additional Provision (c) of
this Exhibit) [*] prior to Gateway shipping specific language versions of Office
for Windows 95, Professional Edition preinstalled on Customer Systems shipped in
Europe and in compliance with a valid OEM license agreement between GATEWAY and
MS; and (ii) were marketed and distributed directly by GATEWAY. Further, such
upgrades as described in this Exhibit C shall not be advertised by GATEWAY and
may only be offered after the sale as a means of customer satisfaction.
(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 to an existing
authorized end-user of the Prior Product (as specified in the chart below) on a
Customer System.
PRIOR PRODUCT
Office Professional Version 4.x for Windows
PRODUCT
Office for Windows 95, Professional Edition
(d) GATEWAY may only distribute the Product either (i) directly (without use
of dealers or other intermediaries) to end users, or (ii) as a mail order
fulfillment item directly (without use of dealers or other intermediaries) to
end users from GATEWAY or an MS designated fulfillment source.
(e) GATEWAY's license to distribute this Product shall [*]
(f) GATEWAY shall acquire the Product through one Authorized Replicator
designated by MS.
(g) This Product may only be distributed to end user customers located within
the geographical boundaries of Europe.
Exhibit to the License [*] between MICROSOFT CORPORATION and GATEWAY 2000
CORPORATION.
[*] CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
EXHIBIT D
PATENTS:
United States, Canada
COPYRIGHTS:
Australia, Brazil, Canada, European Union, Finland, Hong Kong, Indonesia,
Japan, Korea
Malaysia, Mexico, New Zealand, Norway, Philippines, Singapore, Sweden,
Taiwan, United States
TRADEMARKS:
All of the above countries.
MS will give due consideration to countries not listed above on a
case-by-case basis.
EXHIBIT X
GATEWAY SUBSIDIARIES
GATEWAY Subsidiaries authorized to exercise rights under this Agreement are:
I. Name: II. Name:
Address: Address:
Telephone: Telephone:
Fax: Fax:
Each GATEWAY Subsidiary shall execute and submit to MS a GATEWAY Subsidiary
Agreement in the form provided below prior to exercising any rights under the
Agreement.
GATEWAY SUBSIDIARY AGREEMENT
For good and valuable consideration, , a corporation of
("GATEWAY Subsidiary") hereby convenants and agrees with Microsoft
Corporation, a Washington U.S.A. corporation that GATEWAY Subsidiary will
comply with all obligations of , a corporation of ("GATEWAY")
pursuant to that certain License Agreement # between MS and GATEWAY
dated (the "Agreement").
GATEWAY Subsidiary acknowledges that its agreement is a condition for
GATEWAY Subsidiary to exercise any of the rights sub-licensed by GATEWAY to
GATEWAY Subsidiary pursuant to the terms of the Agreement. GATEWAY Subsidiary
shall be jointly and severally liable to MS for all obligations related to
GATEWAY Subsidiary's exercise of license rights or receipt of confidential
information under the Agreement, including but not limited to the payment of
royalties for Product.
Capitalized terms used herein and not otherwise defined shall have the same
meaning as in the Agreement.
IN WITNESS WHEREOF, GATEWAY Subsidiary has executed this agreement as of the
date set forth below. All signed copies of this Agreement shall be deemed
originals.
- ------------------------------------
(GATEWAY Subsidiary)
- ------------------------------------ -----------------------------------
Signature Title
- ------------------------------------ -----------------------------------
Name (Print) Date
Agreed to this day of , 19 .
MICROSOFT CORPORATION -----------------------------------
Name of GATEWAY
- ------------------------------------ -----------------------------------
By By
- ------------------------------------ -----------------------------------
Name (Print) Name (Print)
- ------------------------------------ -----------------------------------
Title Title
- ------------------------------------ -----------------------------------
Date Date
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND ARE THE SUBJECT OF A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED; UNREDACTED VERSION ON FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION
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, Inc. ("GATEWAY") dated [*] is
made and entered into this [*].
1. The attached Exhibit B1 and C4 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 [*] days of receipt 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
/S/ JAN CLAESSON /S/ WILLIAM M. ELLIOTT
- -------------------------------- --------------------------------
By By
/S/ JAN E. CLAESSON /S/ WILLIAM M. ELLIOTT
- -------------------------------- --------------------------------
Name (Print) Name (Print)
/S/ SENIOR VICE PRESIDENT,
/S/ DIRECTOR, OEM GENERAL COUNSEL & SECRETARY
- -------------------------------- --------------------------------
Title Title
[*]
- -------------------------------- --------------------------------
Date Date
EXHIBIT B1
MINIMUM COMMITMENT PAYMENTS
First Period of This Agreement
Payment Amount Cumulative Amount
Date (US$) of Payments for
Period (US$)
Signing of this [*] [*]
Agreement (payment due
upon signing)
[*] after the end of the [*] [*]
calendar quarter in
which the Effective Date
occurs ("FIRST PAYMENT
DATE")
[*] The FIRST PAYMENT DATE [*] [*]
[*] The FIRST PAYMENT DATE [*] [*]
[*] The FIRST PAYMENT DATE [*] [*]
Total First Period [*] [*]
Minimum Commitment
Payments shall be due as specified in Section 3(d) of the Agreement.
EXHIBIT C 4
CONSUMER APPLICATIONS PRODUCTS
*If royalty rate and Customer System are not specified for a particular
Product, then such Product is not licensed under this Agreement.
**Language Key: A = Arabic, CE = Cyrillic Enabled, CH = Chinese, CZ = Czech,
D = German, DA = Danish, DU = Dutch, E = Spanish, EE = Eastern and Central
European, EN = English, FI = Finnish, FR = French, HAN = Hangeul, HB =
Hebrew, HUN = Hungarian, I = Italian, K = Kanji, N = Norwegian, POL = Polish,
POR = Portuguese, PRC = PRC Simplified Chinese, RU = Russian, SW = Swedish,
TH = Thai, TR = Turkish
Products May Be Provided on CD Media As and If Available
<TABLE>
<CAPTION>
LANGUAGE APPLICABLE CUSTOMER ROYALTY/BASIS NON-ENGLISH ADDED BY
PRODUCT NAME AND VERSION(S) APM ADDITIONAL SYSTEM (PER SYSTEM ADDITIONAL AMENDMENT
VERSION PRODUCT TYPE ** REQUIRED PROVISIONS NUMBER* OR PER COPY)* ROYALTY NUMBER
--------------------- ------------ ---------- -------- ---------- -------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
FAMILY VALUE PACK Authorized EN Yes (a),(b),(d) [*] per system US$___
Includes: Replication __
Works v. 3.0 for
Windows(R) or
Works v. 4.0 for
Windows(R) 95
Encarta(R) 1995
Money v. 3.0 or
v. 4.0
Scenes v. 2.0 [Sports
Extremes]
Home CD Sampler
Cinemania 1995
Golf V2.0
WEP I, II, III, IV
</TABLE>
ADDITIONAL PROVISIONS KEY
(a) The following provisions shall apply to all Products listed in this
Exhibit C:
(1) Provided that GATEWAY has complied with the terms and conditions
of this Amendment, GATEWAY may terminate this Exhibit C for the Product by
providing written notice [*] before the occurrence of [*] after the
date the Product was added to this Amendment.
(b) Unless otherwise indicated in this subsection, GATEWAY may distribute
Product(s) only within the geographical boundaries of the country in which
GATEWAY or its subsidiary is located.
(c) This Value Pack includes a license for Microsoft's Home CD Sampler.
GATEWAY agrees to distribute such CD Sampler with all Customer Systems with
which GATEWAY distributes this Value Pack.
EXHIBIT N
ADDRESSES
COMPANY: MS:
NOTICES: NOTICES
Osborne Gateway 2000 Pty Ltd MICROSOFT CORPORATION
8-10 Talavera Rd One Microsoft Way
North Ryde NSW 2113 Redmond, WA 98052-6399
Australia U.S.A.
Attn: [*] Attn: Vice President, OEM Group
Telephone: 612-8448448
Fax: 612-8448600 With copy to:
MICROSOFT CORPORATION
GATEWAY 2000 One Microsoft Way
610 Gateway Drive Redmond, WA 98052-6399
N. Sioux city, SD 57049-2000 U.S.A.
Attn: [*] Attn: Law & Corporate Affairs
Telephone: 605-232-1359 Fax: +1-206-936-7329
Fax: 605-232-2023
Other Correspondence:
BILL TO: OEM Sales
Osborne Gateway 2000 Pty Ltd MICROSOFT CORPORATION
8-10 Talavera Rd One Microsoft Way
North Ryde NSW 2113 Redmond, WA 98052-6399
Australia U.S.A.
Attn: [*]
SHIP TO:
Osborne Gateway 2000 Pty Ltd
8-10 Talavera Rd
North Ryde NSW 2113
Australia NSW 2113
Attn: [*]
COMPANY Support
telephone no.: 612-8448448
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GATEWAY 2000, INC.'S CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 362,552
<SECURITIES> 0
<RECEIVABLES> 384,768
<ALLOWANCES> (14,044)
<INVENTORY> 199,091
<CURRENT-ASSETS> 1,000,486
<PP&E> 364,396
<DEPRECIATION> 81,659
<TOTAL-ASSETS> 1,310,775
<CURRENT-LIABILITIES> 587,049
<BONDS> 8,128
0
0
<COMMON> 766
<OTHER-SE> 660,852
<TOTAL-LIABILITY-AND-EQUITY> 1,310,775
<SALES> 2,279,464
<TOTAL-REVENUES> 2,279,464
<CGS> 1,849,884
<TOTAL-COSTS> 1,849,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,269
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> 154,302
<INCOME-TAX> 52,463
<INCOME-CONTINUING> 101,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,839
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 0
</TABLE>
