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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GATEWAY 2000, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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LOGO
GATEWAY 2000, INC.
610 GATEWAY DRIVE
P.O. BOX 2000
NORTH SIOUX CITY, SOUTH DAKOTA 57049
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Gateway 2000, Inc., held this year on Thursday, May 21, 1998 in Sioux City,
Iowa. The meeting starts at 9:00 a.m., local time, at the Sioux City
Convention Center, 801 Fourth Street in downtown Sioux City. We will provide
sign interpretation for hearing-impaired stockholders. The Convention Center
is fully accessible for disabled persons.
This year we also plan to offer an audio broadcast of our Annual Meeting
through our website, www.gateway.com. To tune into the meeting over the Web,
just go to http://www.gateway.com/annualmeeting and follow the instructions.
The business we'll discuss at the Annual Meeting is described in the
enclosed Proxy Statement and formal Notice of Meeting. Also enclosed is the
Company's 1997 Annual Report to Stockholders. Please read these materials
carefully.
I'm looking forward to telling everyone at the meeting (and listening on the
Web) how Gateway did in 1997 and why we're excited about our prospects in
1998. I'll also introduce our new President and COO, Jeffrey Weitzen. I
appreciate your investment in the Company. We're working hard to keep that
trust.
Hope to see you on May 21.
Sincerely,
/s/ Theodore W. Waitt
Theodore W. Waitt
Chairman of the Board and
Chief Executive Officer
April 6, 1998
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GATEWAY 2000, INC.
610 GATEWAY DRIVE
P.O. BOX 2000
NORTH SIOUX CITY, SOUTH DAKOTA 57049
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 21, 1998
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To the Holders of Common Stock of Gateway 2000, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of Gateway
2000, Inc. (the "Company") will be held on Thursday, May 21, 1998 at the Sioux
City Convention Center, 801 Fourth Street, Sioux City, Iowa 51101, at 9:00
a.m., local time, for the following purposes:
1. To elect two Class II Directors of the Company;
2. To approve an amendment to the Company's 1996 Long-Term Incentive
Equity Plan (the "Plan") to increase the number of shares of Common Stock
of the Company available for issuance under the Plan by 8,000,000 shares;
and
3. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournments thereof.
The close of business on Wednesday, March 25, 1998 is the record date for
determining stockholders entitled to notice of and to vote at the Annual
Meeting and any adjournments thereof. A list of such stockholders will be
available for a period of 10 days prior to the Annual Meeting for examination
by any stockholder, for any purpose germane to the meeting, during normal
business hours at the law offices of Kent Vriezelaar, Esq., Vriezelaar,
Tigges, Edgington, Rossi, Bottaro & Boden, 421 Nebraska Street, Sioux City,
Iowa 51101.
We encourage you to attend the Annual Meeting in person or to vote your
shares by proxy. REGARDLESS OF WHETHER YOU EXPECT TO ATTEND THE ANNUAL MEETING
IN PERSON, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY IN THE
ACCOMPANYING ENVELOPE AT YOUR EARLIEST CONVENIENCE. The proxy is revocable at
any time before it is voted. Returning the proxy will in no way limit your
right to vote at the Annual Meeting if you later decide to attend in person.
By Order of the Board of Directors
/s/ William M. Elliott
William M. Elliott
Senior Vice President, General
Counsel and
Corporate Secretary
North Sioux City, South Dakota
April 6, 1998
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GATEWAY 2000, INC.
610 GATEWAY DRIVE
P.O. BOX 2000
NORTH SIOUX CITY, SOUTH DAKOTA 57049
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PROXY STATEMENT
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The enclosed proxy is being solicited by the Board of Directors (the
"Board") of Gateway 2000, Inc., a Delaware corporation (the "Company"), for
use at the Company's Annual Meeting of Stockholders (the "Annual Meeting") to
be held on Thursday, May 21, 1998, at 9:00 a.m. local time at the Sioux City
Convention Center, 801 Fourth Street, Sioux City, Iowa 51101 and any
adjournment thereof. Holders of record of the Company's Common Stock, $.01 par
value (the "Common Stock"), at the close of business on March 25, 1998 are
entitled to vote at the Annual Meeting. As of that date, there were
154,992,592 shares of Common Stock outstanding. Each share of Common Stock
entitles the holder to one vote.
Two matters are scheduled for stockholder consideration at the Annual
Meeting: (i) the election of two Class II Directors of the Company to hold
office until the annual meeting of stockholders of the Company to be held in
2001 or until successors are duly elected and qualified, and (ii) approval of
an amendment to the Company's 1996 Long-Term Incentive Equity Plan (the
"Plan") to increase the number of shares of Common Stock available for
issuance under the Plan.
In accordance with the Company's by-laws, the Directors will be elected by a
plurality of the votes of the shares of Common Stock present (or represented
by proxy) at the Annual Meeting and entitled to vote on the election of
Directors. Approval of the amendment to the Plan requires the affirmative vote
of a majority of the shares of Common Stock present (or represented by proxy)
and entitled to vote at the Annual Meeting. The Board of Directors knows of no
matters, other than those previously mentioned, to be presented for
consideration at the Annual Meeting. The persons named in the proxy may also,
at their discretion, vote the proxy to adjourn the Annual Meeting from time to
time.
With respect to the election of two Class II Directors, you may vote for the
nominees as listed herein, or withhold authority to vote for the nominees. A
direction to withhold authority to vote will have the effect of an abstention.
You may vote for, against or abstain from voting with respect to the proposal
to approve the amendment to the Plan.
All properly executed, unrevoked proxies received pursuant to this
solicitation prior to the close of voting will be voted as directed therein.
You may revoke your proxy delivered pursuant to this solicitation at any time
prior to its use by executing and delivering a later proxy, by giving written
notice of the revocation to the Corporate Secretary of the Company at or
before the Annual Meeting, or by attending the Annual Meeting and voting in
person.
If a properly executed, unrevoked proxy which has been delivered pursuant to
this solicitation does not specifically direct the voting of the shares
covered thereby, the shares represented by the proxy will be voted (1) FOR the
election of the nominees for Class II Directors and (2) FOR approval of the
proposed Plan amendment and (3) in accordance with the judgment of the persons
named in the proxy as to such other matters as may properly come before the
Annual Meeting.
The holders of a majority of the outstanding shares of Common Stock present
at the Annual Meeting in person or by proxy will constitute a quorum for the
transaction of business at the Annual Meeting. Abstentions and broker non-
votes will count in determining whether a quorum is present at the Annual
Meeting. However, abstentions and broker non-votes with respect to any
specific matter will be treated as shares not voted for
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purposes of determining whether the requisite vote has been obtained. If a
quorum is not present, a majority of the stockholders entitled to vote who are
present in person or by proxy at the Annual Meeting will have the power to
adjourn the Annual Meeting from time to time, without notice other than an
announcement at the Annual Meeting, until a quorum is present. At any
reconvened Annual Meeting at which a quorum is present, any business may be
transacted that might have been transacted at the Annual Meeting as originally
notified.
This Proxy Statement and accompanying forms of proxy are first being mailed
to stockholders together with the Annual Report of the Company for the year
ended December 31, 1997, on or about April 6, 1998.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's certificate of incorporation divides the Board into three
classes. All Directors of the Company are elected to three-year terms and
serve until the annual meeting of stockholders held during the year in which
their terms expire and until their successors are duly elected and qualified,
or until their earlier resignation or removal. The current term of Class II
Directors will expire at the Annual Meeting of Stockholders to be held on
Thursday, May 21, 1998; the current term of the Class III Directors will
expire at the annual meeting of stockholders held in 1999; and the current
term of Class I Directors will expire at the annual meeting of stockholders
held in 2000.
The Board has nominated two of the incumbent Class II Directors, Messrs.
Weitzen and Lacey, for re-election, each to hold office until the annual
meeting of stockholders held in 2001 or until a successor is duly elected and
qualified, subject to prior termination of service in accordance with the
Company's certificate of incorporation, by-laws and applicable law. In the
event a candidate is unable to serve, the persons listed in the enclosed proxy
will vote for a replacement nominee recommended by the Board. Mr. James W.
Cravens, age 78, a Class II Director of the Company since 1991, will retire
from the Board at the Annual Meeting and will not stand for re-election. The
number of members of the Board is currently set at eight. Following the Annual
Meeting and the retirement of Mr. Cravens, the number will be set at seven.
Gateway has agreed in its employment agreement with Mr. Weitzen to nominate
Mr. Weitzen as a Director of the Company at the 1998 Annual Meeting. Certain
information concerning Messrs. Weitzen and Lacey, and the other members of the
Board whose terms do not expire at the Annual Meeting, is set forth below.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF JEFFREY
WEITZEN AND DOUGLAS L. LACEY AS CLASS II DIRECTORS OF THE COMPANY.
CLASS II DIRECTORS--TERM EXPIRING 1998
JEFFREY WEITZEN, DIRECTOR, PRESIDENT AND CHIEF OPERATING OFFICER, age 41--
Mr. Weitzen was elected a Director, President and Chief Operating Officer of
the Company in January 1998. He was previously employed by AT&T where he was
Executive Vice President, Business Markets Division of AT&T Corp. from January
1997 until January 1998. From 1994 until 1996 he was Vice President & General
Manager--Global Services at AT&T Corp. and from 1992 until 1994 he was
President of AT&T's business and consumer lines of business in the Asia
Pacific region.
DOUGLAS L. LACEY, DIRECTOR, age 50--Mr. Lacey is a partner in the accounting
firm of Nichols, Rise & Company, L.L.P. and managing partner of its Sioux
City, Iowa office. Mr. Lacey joined Nichols, Rise & Company, L.L.P. in 1973.
He received a B.A. degree from Briar Cliff College in 1973. He has been a
Director of the Company since 1989. Mr. Lacey is Chairman of the Audit
Committee.
CLASS III DIRECTORS--TERM EXPIRING 1999
GEORGE H. KRAUSS, DIRECTOR, age 56--Mr. Krauss has been an attorney with the
law firm of Kutak Rock in Omaha, Nebraska since 1972 and is engaged in the
firm's corporate, mergers and acquisitions, and regulatory practices. Mr.
Krauss became a partner in Kutak Rock in 1975 and became of counsel on January
1, 1997 and
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served as the firm's presiding partner from 1983 to 1994. Mr. Krauss received
B.S., M.B.A. and J.D. degrees from the University of Nebraska. Mr. Krauss also
serves on the Board of Directors of the general partner of America First
Financial Fund 1987-A Limited Partnership, which is a publicly-traded limited
partnership formed for the purpose of acquiring financial institutions, and is
a member of the Board of Directors of its subsidiary, Eureka Savings Bank. Mr.
Krauss has been a Director of the Company since 1991. He is a member of the
Nominating Committee and Chairman of the Compensation Committee.
RICHARD D. SNYDER, DIRECTOR, age 39--Mr. Snyder has been President of Avalon
Investments, Inc. in Ann Arbor, Michigan, a venture capital management company
since September 1997. Mr. Snyder served as President and Chief Operating
Officer of the Company from January 1996 until his resignation in August 1997
and was Executive Vice President of the Company from July 1991 until January
1996. Mr. Snyder has been a Director of the Company since 1991 and is a member
of the Board's Nominating Committee.
CLASS I DIRECTORS--TERM EXPIRING 2000
CHARLES G. ("CHASE") CAREY, DIRECTOR, age 44--Mr. Carey is the Chairman of
the Board and Chief Executive Officer of the Fox Television Division of Fox
Inc. and Co-Chief Operating Officer of News Corporation, located in Beverly
Hills, California. Mr. Carey has served in various executive capacities at Fox
since 1988. He received a B.A. from Colgate University and an M.B.A. from
Harvard University. Mr. Carey has been a Director of the Company since March
1996 and is a member of the Audit Committee.
JAMES F. MCCANN, DIRECTOR, age 46--Mr. McCann has served as President of 1-
800-FLOWERS, located in Westbury, New York, since 1987. Mr. McCann also serves
on the boards of Hofstra University, Winthrop-University Hospital, Very
Special Arts, The National Retail Federation and is a member of the Dean's
Council of the John F. Kennedy School of Government at Harvard University. Mr.
McCann has been a Director of the Company since 1996 and is a member of the
Compensation Committee.
THEODORE W. WAITT, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND
DIRECTOR, age 35--Mr. Waitt co-founded the Company in 1985, and since that
time served as a Director of the Company and as the Company's President until
January 1996. He has served as Chief Executive Officer of the Company and
Chairman of the Board of Directors since February 1993. His responsibilities
include overseeing overall Company performance, setting strategic direction
and leading marketing and product development efforts. Mr. Waitt is Chairman
of the Board's Nominating Committee.
COMPOSITION AND MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended December 31, 1997, the Board met seven times.
The standing committees of the Board are the Compensation Committee, the Audit
Committee and the Nominating Committee.
The Compensation Committee currently consists of Messrs. Krauss (Chairman),
Cravens and McCann. The Compensation Committee determines the compensation of
certain of the Company's elected officers and assists the Board in determining
compensation for the Company's other management employees. The full Board,
rather than the Compensation Committee, determines the compensation of the
Company's Chairman and Chief Executive Officer and President and Chief
Operating Officer. In 1997, the Compensation Committee met five times and
approved grants of options during 1997 under the Company's 1996 Long-Term
Incentive Equity Plan (the "1996 Plan" or the "Plan") and reviewed the
compensation of the Company's senior management, as described above and in the
"Report of the Compensation Committee and the Board of Directors Regarding
Executive Compensation" on page 15. The Compensation Committee administers the
Company's stock option plans and the Company's Employee Stock Purchase Plan
(the "Stock Purchase Plan").
The Audit Committee currently consists of Messrs. Lacey (Chairman), Carey
and Cravens. It is responsible for retaining the Company's independent
accountants and consulting with them regarding the scope and timing of their
audit, the accountant's report concerning the Company's audited financial
statements and the Company's internal accounting controls. The Audit Committee
met three times in 1997.
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The Nominating Committee consists of Messrs. Waitt (Chairman), Krauss and
Snyder. This committee is responsible for reviewing and recommending to the
Board criteria for Board membership and for identifying, evaluating and
proposing to the Board nominees for membership on the Board. The Nominating
Committee did not meet during 1997 apart from meetings of the full Board.
The Nominating Committee will consider nominees recommended by stockholders.
Each stockholder must comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
regulations thereunder with respect to the nomination or proposal of nominees
for election as Directors of the Company.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company are compensated at the rate
of $6,000 per quarter, plus $1,000 per meeting of the Board, $500 per meeting
of any committee of the Board and $200 per telephonic meeting attended (up to
a maximum of $1,500 per day for all meetings attended). Directors are also
reimbursed for their expenses incurred in attending such meetings. Directors
who are employees of the Company receive no additional compensation for their
services as Directors of the Company.
Under the Company's 1996 Non-Employee Director Stock Option Plan (the "1996
Director Plan"), each non-employee Director received an option grant for
12,000 shares following the 1997 Annual Meeting. Options under the 1996
Director Plan are granted at an exercise price equal to the fair market value
(as determined under the plan) of a share of Common Stock on the date of
grant. Each non-employee Director will receive an annual stock option grant
for 12,000 shares immediately following each annual meeting of stockholders.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
1996 LONG-TERM INCENTIVE EQUITY PLAN
The Board of Directors has determined that the Company's 1996 Long-Term
Incentive Equity Plan (the "1996 Plan" or "Plan") should be amended to
increase the number of shares of the Company's capital stock issuable pursuant
to the Plan by 8,000,000 shares. The purpose of increasing the number of
shares available for issuance under the 1996 Plan is to ensure that the
Company will continue to be able to grant options or stock awards as
incentives to those individuals upon whose efforts the Company relies for the
continued success, development and growth of its business. The affirmative
vote of a majority of the shares of Common Stock present or represented by
proxy and entitled to vote at the Annual Meeting will be required to approve
the amendment to the Plan.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE AMENDMENT TO THE 1996 PLAN
THE GATEWAY 2000, INC. 1996 LONG-TERM INCENTIVE EQUITY PLAN
Note that the amendment to the 1996 Plan has been approved by the Board of
Directors and will be voted upon at the Annual Meeting.
Summary. A summary of the 1996 Plan is set forth below. The summary is
qualified in its entirety by reference to the full text of the 1996 Plan,
which is attached to this Proxy Statement as Appendix A. All share numbers
referred to herein reflect the Company's two-for-one stock split in June 1997.
The primary purposes of the 1996 Plan are to promote the long-term success
of the Company and its stockholders by strengthening the Company's ability to
attract and retain highly competent employees and to provide a means to
encourage stock ownership and proprietary interest in the Company. Grants of
awards under the Plan are consistent with the Company's goals of providing
total employee compensation that is competitive in the marketplace,
recognizing meaningful differences in individual performance, fostering
teamwork and offering the opportunity to earn above-average rewards when
merited by individual and corporate performance. Any employee of the Company
or of any entity that is directly or indirectly controlled by the Company or
any entity in which the Company has a significant equity interest may be
designated by the Compensation Committee
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to receive one or more awards under the 1996 Plan. As of March 1, 1998, the
Company and its subsidiaries had approximately 13,000 employees eligible to
receive awards. A total of 12,800,000 shares of Common Stock (or 20,800,000
shares, if the proposed amendment is approved by the stockholders), subject to
adjustment, are authorized for issuance under the 1996 Plan. As of March 1,
1998, options to purchase 8,321,136 shares of Common Stock have been granted
under the 1996 Plan. The aggregate number of shares of Common Stock that may
be covered by awards granted to any single individual under the 1996 Plan may
not exceed 1,000,000 shares per fiscal year of the Company. The aggregate
number of shares of Common Stock granted in the form of stock awards under the
1996 Plan may not exceed 6,400,000 shares per fiscal year of the Company. Any
or all of the shares under the 1996 Plan may be granted in the form of
incentive stock options ("ISOs").
Under the 1996 Plan, participants may receive stock options, stock
appreciation rights ("SARs") or stock awards, as discussed in greater detail
below. The Compensation Committee will determine the type or types of awards
to be made to each participant. Awards may be granted singly, in combination
or in tandem. Awards also may be made in combination or in tandem with, in
replacement of, as alternatives to or as the payment for grants or rights
under any other employee or compensation plan of the Company, including the
plan of any acquired entity. "Fair Market Value" for all awards granted under
the 1996 Plan is defined generally as the closing price of a share of Common
Stock as reported daily in The Wall Street Journal or similar, readily
available public source for the date in question.
Stock Options. A stock option represents a right to purchase a specified
number of shares of Common Stock during a specified period as determined by
the Compensation Committee. The purchase price per share for each stock option
may not be less than 100% of the Fair Market Value of a share of Common Stock
on the date of grant, subject to certain exceptions. A stock option may be in
the form of an ISO which complies with Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or a non-qualified stock option. The
shares covered by a stock option may be purchased by (1) cash payment, (2)
tendering shares of Common Stock, (3) third-party exercise transactions or (4)
any combination of these methods. The term of any ISO shall not exceed ten
years from the date of grant.
SARs. A SAR generally represents a right to receive payment, in cash and/or
shares of Common Stock, equal to the excess of the Fair Market Value of a
specified number of shares of Common Stock on the date the SAR is exercised
over the Fair Market Value of such shares on the date the SAR was granted, as
set forth in the applicable award agreement.
Stock Awards. A stock award represents a grant made or denominated in shares
of Common Stock or units equivalent in value to shares of Common Stock. All or
part of any stock award may be subject to conditions and restrictions
established by the Compensation Committee and set forth in the award
agreement, which may include, but are not limited to, continuous service with
the Company and/or the achievement of performance goals.
The performance criteria used by the Compensation Committee in granting
stock awards under the 1996 Plan which are intended to qualify as performance-
based compensation for purposes of Section 162(m) of the Code shall consist of
earnings, earnings per share, revenues, profit growth, profit-related return
ratios, cash flow or total stockholder return. The Compensation Committee may
select one criterion or multiple criteria for measuring performance, and the
measurement may be stated in absolute terms or relative to comparable
companies.
The Compensation Committee may provide that any awards under the 1996 Plan
earn dividends or dividend equivalents. Such dividends or dividend equivalents
may be paid currently or may be credited to a participant's account. Any
crediting of dividends or dividend equivalents may be made subject to such
restrictions and conditions as the Compensation Committee may establish,
including reinvestment in additional shares or share equivalents.
In the event of a stock dividend, stock split or other change affecting the
shares or share price of Common Stock, such proportionate adjustments, if any,
as the Compensation Committee deems appropriate, will be made with respect to
(1) the aggregate number of shares of Common Stock that may be issued under
the Plan, (2) each
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outstanding award made under the Plan, and (3) the exercise price per share
for any outstanding stock options, SARs or similar awards under the Plan.
Payment of awards may be in the form of cash, shares of Common Stock, other
awards or combinations thereof as the Compensation Committee shall determine
at the time of the grant, and with such restrictions as it may impose. The
Compensation Committee also may require or permit participants to elect to
defer the issuance of shares or the settlement of awards in cash under such
rules and procedures as it may establish under the 1996 Plan. It also may
provide that deferred settlements include the payment or crediting of interest
on the deferral amounts, or the payment or crediting of dividend equivalents
where amounts are denominated in share equivalents.
Awards granted under the 1996 Plan are not transferable or assignable other
than: (1) by will or the laws of descent and distribution; (2) by gift or
other transfer of an award to any trust or estate in which the original award
recipient or such recipient's spouse or other immediate relative has a
substantial beneficial interest, or to a spouse or other immediate relative,
provided that such transfer is permitted by Rule 16b-3 under the Exchange Act
as in effect when such transfer occurs and the Board does not rescind this
provision prior to such transfer; or (3) pursuant to a qualified domestic
relations order. In the event that a participant terminates employment with
the Company to assume a position with a specified non-profit institution, the
Compensation Committee may subsequently authorize a third party to administer
any outstanding awards held by the participant.
The 1996 Plan terminates on the fifth anniversary of the date the Plan was
ratified and approved by the stockholders (i.e., May 16, 2001) unless earlier
terminated by the Compensation Committee. Awards granted prior to termination
of the Plan will remain outstanding in accordance with their applicable terms
and conditions.
Federal Income Tax Consequences. In general, under the Code as presently in
effect, a participant will not be deemed to receive any income for federal
income tax purposes at the time an option or SAR is granted or a restricted
stock award is made, nor will the Company be entitled to a tax deduction at
that time. However, when any part of an option or SAR is exercised, when
restrictions on restricted stock lapse or when an unrestricted stock award is
made, the federal income tax consequences may be summarized as follows:
1. In the case of an exercise of a non-qualified stock option, the
participant will recognize ordinary income in an amount equal to the
difference between the option price and the Fair Market Value of the Common
Stock on the exercise date.
2. In the case of an exercise of a SAR, the participant will recognize
ordinary income on the exercise date in an amount equal to any cash and
unrestricted Common Stock received, at Fair Market Value on the exercise
date.
3. In the case of an exercise of an option or SAR payable in restricted
stock, or in the case of an award of restricted stock, the immediate
federal income tax effect for the recipient will depend on the nature of
the restrictions. Generally, the value of the Common Stock will not be
taxable to the recipient as ordinary income until the year in which his or
her interest in the stock is freely transferable or is no longer subject to
a substantial risk of forfeiture. However, the recipient may elect to
recognize income when the stock is received, rather than when his or her
interest in the stock is freely transferable or is no longer subject to a
substantial risk of forfeiture. If the recipient makes this election, the
amount taxed to the recipient as ordinary income is determined as of the
date of receipt of the restricted stock. Unrestricted stock awards will
generally be taxable as ordinary income to the recipient upon receipt.
4. In the case of an ISO, there is no tax liability at the time of
exercise. However, the excess of the Fair Market Value of the Common Stock
on the exercise date over the option price is included in the participant's
income for purposes of the alternative minimum tax. If no disposition of
the ISO stock is made before the later of one year from the date of
exercise or two years from the date the ISO is granted, the participant
will realize a long-term capital gain or loss upon a sale of the stock,
equal to the difference between the option price and the sale price. If the
stock is not held for the required period, ordinary income tax treatment
will generally apply to the amount of any gain at sale or exercise,
whichever is less, and the
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balance of any gain or loss will be treated as capital gain or loss (long-
term or short-term, depending on whether the shares have been held for more
than one year).
5. Upon the exercise of a non-qualified stock option or SAR, the award of
unrestricted stock, or the recognition of income on restricted stock, the
Company will generally be allowed an income tax deduction equal to the
ordinary income recognized by the employee. The Company does not receive an
income tax deduction as a result of the exercise of an ISO, provided that
the ISO stock is held for the required period as described above. If the
ISO is not held for such required period and ordinary income tax treatment
is applied to the amount of any gain at sale or exercise by the recipient,
the Company will generally receive an income tax deduction for a
corresponding amount. When a cash payment is made pursuant to the award,
the recipient will recognize the amount of the cash payment as ordinary
income, and the Company will generally be entitled to a deduction in the
same amount.
6. The Company may not deduct compensation of more than $1,000,000 that
is paid in a taxable year to certain "covered employees" as defined in
Section 162(m) of the Code. The deduction limit, however, does not apply to
certain types of compensation, including qualified performance-based
compensation. The Company believes that compensation attributable to option
and SAR awards granted under the 1996 Plan is qualified performance-based
compensation and therefore not subject to the deduction limit. Forms of
other awards also may, but need not, qualify as performance-based
compensation for such purposes.
7. The Company may not deduct any amount with respect to the 1996 Plan
that is an "excess parachute payment" within the meaning of Section 280G of
the Code. In general, a payment in the nature of compensation to a
"disqualified individual" will be a parachute payment if such payment is
contingent on a change in control of the Company, and the aggregate value
of all such payments to the disqualified individual exceeds three times the
disqualified individual's average compensation for the preceding five
years. The amount of parachute payments in excess of one times the
disqualified individual's average compensation will disallowed as an excess
parachute payment. The grant of an option and or the acceleration of the
vesting of an option can be treated as a parachute payment for these
purposes. The 1996 Plan contains certain provisions providing for the grant
and/or acceleration of options upon or in connection with a "change in
control" of the Company, as described below in Change of Control. If any
amount that would otherwise be deductible by the Company in connection with
such options is deemed to be an excess parachute payment within the meaning
of Section 280G of the Code, the Company will not be able to deduct such
amount.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON AWARD RECIPIENTS AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE
OF AWARDS UNDER THE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT
DISCUSS THE TAX CONSEQUENCES OF THE EMPLOYEE'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE MAY RESIDE.
Administration of the 1996 Plan. The 1996 Plan is administered by the
Compensation Committee, which has full and exclusive power to administer and
interpret the 1996 Plan and its provisions. This power includes, but is not
limited to, selecting award recipients, establishing all award terms and
conditions, adopting procedures and regulations governing awards and making
all other determinations necessary or advisable for the administration of the
1996 Plan. All decisions made by the Compensation Committee are final and
binding on all persons affected by such decisions.
Change of Control. The 1996 Plan defines a "change of control" as (i) the
acquisition, directly or indirectly by any person or related group of persons
(other than Gateway or a person that directly or indirectly controls, is
controlled by, or is under common control with Gateway), of beneficial
ownership of securities possessing more than fifty percent of the total
combined voting power of Gateway's outstanding securities pursuant to a tender
or exchange offer made directly to Gateway's stockholders, (ii) a change in
the composition of the Board over a period of thirty-six consecutive months or
less such that a majority of the Board members cease to be comprised of
individuals who either (A) have been Board members continuously since the
beginning of such period or (B)
7
<PAGE>
have been initially elected or nominated for election as Board members during
such period by at least a majority of the Board members described in clauses
(A) and (B) who were still in office at the time such election or nomination
was approved by the Board, (iii) a merger or consolidation in which the
securities possessing more than fifty percent of the total combined voting
power of Gateway's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior
to such transaction, or (iv) the sale, transfer or other disposition of all or
substantially all of Gateway's assets or the complete liquidation or
dissolution of the Company.
Upon the occurrence of a change of control, all employees who received a
grant of options under the Plan in the twelve months preceding such change of
control will receive a grant of options on the day preceding such change of
control equal to the aggregate number of options granted to such employee in
such twelve-month period, provided that such grant will comply with Section
162(m) of the Code. All options granted pursuant to the preceding sentence
will vest twenty-four months from the date of grant, unless accelerated as
provided below. Upon a change of control described in (i) or (iii) above, all
outstanding options that are not exercisable on the date of such change of
control, including options granted pursuant to this paragraph, shall
immediately vest and become exercisable in full, unless the acquiring company
has agreed in writing to assume the option obligation by substituting
comparable options. Upon an involuntary termination (as defined in the Plan)
within eighteen months of the effective date of a change of control, such
participant's then outstanding nonexercisable options shall become exercisable
in full.
Amendment of the 1996 Plan. The 1996 Plan may be amended by the Compensation
Committee as it deems necessary or appropriate, except that any amendment for
which stockholder approval is required for the Plan to continue to comply with
the requirements of Rule 16b-3 of the Exchange Act or Rule 162(m) of the Code
and any amendment which would increase the number of shares available for
issuance must be approved by the affirmative vote of the stockholders in the
manner described in the following paragraph prior to becoming effective.
Any amendment to the 1996 Plan requiring stockholder approval will become
effective on the date it is approved by the affirmative vote of the holders of
a majority of the stockholders present or represented by proxy, and entitled
to vote at, the Annual Meeting.
New Plan Benefits. As described above, the Compensation Committee has
discretion to determine the number of awards (if any) to be granted to any
individual under the 1996 Plan. Accordingly, the actual number of awards that
any individual may receive in the future is not presently determinable. To
date, only stock options have been granted under the 1996 Plan. The following
table sets forth, as of March 1, 1998, the aggregate number of shares of
Common Stock subject to options granted under the 1996 Plan to the Company's
Chief Executive Officer and its four other most highly compensated officers.
Although granted, such awards may vest in subsequent years according to the
terms of the respective award agreements. The value to the optionee of the
awards granted depends on the market price of the Common Stock on the date of
exercise, and, accordingly cannot be ascertained at this time.
8
<PAGE>
LONG-TERM INCENTIVE EQUITY PLAN--PREVIOUS GRANTS
<TABLE>
<CAPTION>
OPTION SHARES
NAME AND POSITION GRANTED(1)
----------------- -------------
<S> <C>
Theodore W. Waitt........................................... 430,000
Chairman of the Board and CEO
James A. Taylor............................................. 110,000
Former Senior Vice President, Global Marketing
David J. McKittrick......................................... 86,000
Senior Vice President, CFO, Treasurer and CIO
Joseph J. Burke............................................. 71,000
Senior Vice President, Gateway Country Stores
Robert N. Beck.............................................. 89,000
Former Senior Vice President, Human Resources
All current executive officers.............................. 2,730,000
All current directors who are not executive officers........ 172,000
All current employees, other than executive officers........ 4,793,783
</TABLE>
- --------
(1) As adjusted to reflect the Company's two-for-one stock split in June 1997.
INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of Coopers & Lybrand L.L.P.,
independent accountants ("Coopers & Lybrand"), as the Company's independent
accountants to audit the Company's consolidated financial statements for the
fiscal year ending December 31, 1998. Coopers & Lybrand has served as the
Company's independent accountants since 1989. Representatives of Coopers &
Lybrand are expected to be present at the Annual Meeting and will have an
opportunity to make a statement on behalf of their firm if they wish. They
will also be available to respond to any appropriate questions of any
stockholder of the Company.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 1998, regarding
the beneficial ownership of Common Stock and Class A Common Stock by (1) each
stockholder known by the Company to be the beneficial owner of more than 5% of
Common Stock; (2) by each Director of the Company; (3) by each elected officer
named in the Summary Compensation Table on page 13; and (4) by all elected
officers and directors of the Company as a group. No shares of Class A Common
Stock are issued and outstanding. Except as indicated in the footnotes hereto,
each person named in the table has (or could have upon exercise of an option
vested or vesting within 60 days after March 1, 1998) sole voting and
investment power (or such power together with any spouse of such person, if
they are joint tenants) with respect to securities beneficially owned by such
person as set forth opposite such person's name:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF % OF
OWNER(1) TITLE OF CLASS SHARES(2) CLASS(3)
- ------------------------------ -------------------- ---------- --------
<S> <C> <C> <C>
Theodore W. Waitt................. Common Stock 68,363,800 44.19%
Jeffrey Weitzen................... Common Stock 17,648(4)
James A. Taylor................... Common Stock 32,500
David J. McKittrick............... Common Stock 174,000
Joseph J. Burke................... Common Stock 30,500
Robert N. Beck.................... Common Stock 101,500
Charles G. Carey.................. Common Stock 26,000(5)
James W. Cravens.................. Common Stock 10,000(5)
George H. Krauss.................. Common Stock 51,000(5)
Douglas L. Lacey.................. Common Stock 57,000(5)
James F. McCann................... Common Stock 30,000(5)
Richard D. Snyder................. Common Stock 898,000
All Directors and elected
officers.......................... Common Stock 70,162,899 45.36%
as a group (22 persons) Class A Common Stock 213,580**
Norman W. Waitt, Jr. Trust (6).... Common Stock 12,791,200 8.27%
P.O. Box 980
North Sioux City, SD 57049
</TABLE>
- --------
**Numbers of shares of Class A Common Stock shown in this table and related
percent of class numbers are expressed as the number or percentage, as
appropriate, of shares of Common Stock into which they are convertible.
Each share of Class A Common Stock subject to options is convertible upon
exercise into 546 shares of Common Stock.
(1) Unless otherwise indicated, the address of each beneficial owner listed
above is c/o Gateway 2000, Inc., 610 Gateway Drive, North Sioux City,
South Dakota 57049.
(2) Includes beneficial ownership of shares of Common Stock which may be
acquired pursuant to employee stock options for Messrs. Waitt--272,500
shares, Taylor--32,500 shares, McKittrick--174,000 shares, Burke--30,500
shares and Beck--101,500 shares. Mr. Waitt's shares exclude 1,784,500
shares held by a foundation of which he is a director and as to which he
disclaims beneficial ownership.
(3) Less than 1 percent unless otherwise indicated. With respect to each
individual, includes options to purchase Common Stock and Class A Common
Stock exercisable within 60 days from March 1, 1998.
(4) In January 1998, the Company issued a stock bonus of 17,648 restricted
shares of Common Stock outside the 1996 Plan to Jeffrey Weitzen to induce
him to join the Company.
10
<PAGE>
(5) Includes beneficial ownership of shares of Common Stock which may be
acquired pursuant to non-employee director stock options for Messrs.
Carey--22,000 shares, Cravens--7,000 shares, Krauss--51,000 shares,
Lacey--45,000 shares, and McCann--18,000 shares.
(6) This information, and the information in this footnote, is based upon
third-party filings with the Securities and Exchange Commission (the
"SEC"), and the Company has not made further investigation or review of
such information. A Schedule 13G was filed by Norman W. Waitt, Jr., as
trustee and sole beneficiary under the Norman W. Waitt, Jr. Trust, a
predecessor trust and Norman W. Waitt, Jr., in his individual capacity, on
February 18, 1994, and amended through February 13, 1998.
EXECUTIVE OFFICERS
The executive officers of the Company are its senior elected officers and
serve for terms of office determined by the Board. Biographical summaries of
the business experience of Mr. Waitt, Chairman and Chief Executive Officer of
the Company and Mr. Weitzen, President and Chief Operating Officer, are
included under "Proposal 1--Election of Directors" on page 2. The names, ages,
and biographical information with respect to each other executive officer are
as follows:
DAVID J. ROBINO, EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER,
38--Mr. Robino joined the Company in January 1998 when he was elected as
Executive Vice President and Chief Administrative Officer. Mr. Robino has
responsibility for human resources, community relations, government affairs,
law, and administration. From 1995 until January 1998, he was with AT&T Corp.
where he was most recently Human Resources Vice President, Business Markets
Division. From 1989 to 1995 he was Senior Vice President, Human Resources at
A.C. Nielsen Company. Mr. Robino first became an executive officer of the
Company in 1998.
JOSEPH J. BURKE, SENIOR VICE PRESIDENT, GLOBAL BUSINESS DEVELOPMENT, 40--Mr.
Burke joined the Company in October 1995 as Vice President responsible for
market development. In 1997, Mr. Burke was elected as Senior Vice President
for Global Business Development. Before joining the Company, Mr. Burke spent
eight years with Blockbuster Entertainment Corporation, a worldwide home
entertainment retailer. At Blockbuster, Mr. Burke most recently served as
Senior Vice President and Chief Financial Officer of the International
Division. Mr. Burke was first elected an executive officer in 1995.
ROBERT J. CHENG, SENIOR VICE PRESIDENT, GATEWAY DIRECT, 38--Mr. Cheng joined
the Company in January 1991 as Director of Marketing. He was promoted to
director of desktop PCs in June 1994 and to Vice President responsible for
desktops in May 1995. In November 1995, Mr. Cheng became responsible for
marketing operations in the Company's Americas Group. In November 1996, he was
promoted to Managing Director of the Europe/Middle East/Africa division until
his promotion in 1997 to Senior Vice President, Gateway Direct. Mr. Cheng was
first elected an executive officer in 1995.
JAMES P. COLLAS, SENIOR VICE PRESIDENT, GLOBAL PRODUCTS, 37--Mr. Collas
joined the Company in June 1992 and was responsible for the Company's product
development department. He was promoted to Vice President of Product
Development in December 1992. In 1994, Mr. Collas changed responsibilities to
oversee the Company's technical services and support operations. In 1995, Mr.
Collas was named Senior Vice President responsible for global products. Before
joining the Company, Mr. Collas was the President of Anigma, Inc., a PC system
board and motherboard design and development company which he founded in 1987.
Mr. Collas was first elected an executive officer in 1992.
WILLIAM M. ELLIOTT, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE
SECRETARY, 63--Mr. Elliott joined the Company in May 1994 as Vice President
and General Counsel and was elected Corporate Secretary in May 1995. In
October 1995, Mr. Elliott was named Senior Vice President and his
responsibilities continued to include managing the Company's legal affairs and
acting as Corporate Secretary. Before joining the Company, Mr. Elliott spent
three years as Senior Vice President of International Telecharge, Inc., a
telecommunications company specializing in the public and private pay
telephone markets. From 1977 to 1990, Mr. Elliott was Senior Vice President
and General Counsel of Northrop Corporation, an aircraft manufacturing
corporation. Mr. Elliott was first elected an executive officer in 1994.
11
<PAGE>
MICHAEL D. HAMMOND, SENIOR VICE PRESIDENT, GLOBAL MANUFACTURING, 36--Mr.
Hammond co-founded the Company in 1985 with Ted Waitt and has been employed by
the Company in various positions since that time. Mr. Hammond was elected
Senior Vice President for Global Manufacturing in 1997 with responsibility for
product manufacturing, logistics, materials management and inventory. His
previous position was Vice President for the Company's Asia/Pacific group. Mr.
Hammond was first elected an executive officer in 1992.
DAVID J. MCKITTRICK, SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND CHIEF INFORMATION OFFICER, 52--Mr. McKittrick joined the Company
in March 1995 as Senior Vice President and Chief Financial Officer and was
elected Treasurer in July 1995 and Chief Information Officer in 1997. Before
joining the Company, Mr. McKittrick spent two years as Vice Chairman and Chief
Operating Officer of Collins & Aikman Group, Inc., a diversified manufacturing
and retail company. Before that, Mr. McKittrick was Senior Vice President and
Chief Financial Officer of James River Corporation, a paper and consumer
products manufacturer. Mr. McKittrick was first elected an executive officer
in 1995.
ROBERT M. SPEARS, SENIOR VICE PRESIDENT, GATEWAY MAJOR ACCOUNTS, 38--Mr.
Spears is a Senior Vice President, Gateway Major Accounts with responsibility
for large corporate, education and government customers on a global basis.
From 1995 through 1997, Mr. Spears served as Senior Vice President of
Americas, with responsibility for all operations in the Americas region. From
1993 through 1995, Mr. Spears served as the Managing Director of Gateway's
European operations in Dublin, Ireland. Prior to moving to Ireland in 1993, he
was responsible for management information systems, human resources and other
projects involving the strategic direction of the Company. Mr. Spears joined
the Company in 1990 and was first elected an executive officer in 1990.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table and related footnotes show the compensation paid during
1995, 1996 and 1997 to the Company's Chief Executive Officer, and its four
other most highly compensated officers for services rendered during such
period to the Company and its subsidiaries:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION
COMPENSATION AWARDS ($)
--------------- -------------- ------------
SECURITIES
SALARY BONUS UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#)(7)
--------------------------- ---- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Theodore W. Waitt............. 1997 615,000 239,850 230,000 0
Chairman of the Board 1996 585,000 380,250 460,000 0
and Chief Executive Officer 1995 573,353 265,563 60,000 0
James A. Taylor............... 1997 336,250 102,000 57,000 20,566(1)
Former Senior Vice President 1996 257,292 167,375 158,000 350,392(2)
Global Marketing 1995
David J. McKittrick........... 1997 332,500 45,225 61,000 3,185(3)
Senior Vice President, Chief
Financial Officer, 1996 320,000 141,120 0 4,430(4)
Treasurer & Chief Information
Officer 1995 266,667 94,647 400,000 770(3)
Joseph J. Burke............... 1997 277,500 99,000 34,000 8,010(5)
Senior Vice President 1996 260,625 104,923 12,000 52,000(5)
Gateway Country Stores 1995
Robert N. Beck................ 1997 326,000 45,090 61,000 2,774(3)
Former Senior Vice President 1996 310,500 132,098 53,000 8,817(6)
Human Resources 1995 155,769 66,984 300,000 60,000(6)
</TABLE>
- --------
(1) Reimbursement of relocation payments.
(2) Mr. Taylor was employed with the Company from March 20, 1996 until he
resigned effective March 30, 1998; amounts include $392 of imputed income
from supplemental group life insurance and $350,000 payment in lieu of
lost incentive compensation from prior employer.
(3) 401(k) Company matching contributions.
(4) Mr. McKittrick's employment with the Company began on March 1, 1995;
amounts include $1,575 of Company matching contributions pursuant to the
Company's 401(k) plan and $2,855 of imputed income from supplemental group
term life insurance.
(5) 1997 amounts include $2,177 for 401(k) Company matching contributions and
$5,833 for relocation payments; 1996 amounts are for relocation payments.
(6) Mr. Beck's employment with the Company began on June 26, 1995 and ended on
December 31, 1997; 1996 includes $2,375 of Company matching contributions
pursuant to the Company's 401(k) plan and $6,442 of imputed income from
supplemental group term life insurance; 1995 represents payment in lieu of
lost incentive compensation from prior employer.
(7) Adjusted for two-for-one stock split June 16, 1997.
Officers and management of the Company receive compensation in the form of
base salary, annual incentive awards and equity participation. Elected
officers of the Company also receive a severance benefit equal to twelve
months of their base salary. This severance benefit does not apply to
voluntary or for-cause termination. The benefit is paid in monthly
installments for twelve months or until such earlier time as the individual
finds comparable employment elsewhere. See "Report of the Compensation
Committee and the Board of Directors Regarding Executive Compensation" on page
15.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table and related footnotes set forth as of December 31, 1997
the number of securities underlying options held by the Company's Chief
Executive Officer and its four other most highly compensated officers and the
value thereof.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT FISCAL YEAR-END, AT FISCAL YEAR-END,
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) (1) ($) (2)
---- ----------- ---------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Theodore W. Waitt....... 0 0 145,000/605,000 2,677,050/7,425,300
James A. Taylor......... 32,500 $ 577,656 7,000/175,500 91,420/2,281,243
David J. McKittrick..... 60,000 $1,548,288 140,000/261,000 3,298,400/4,844,660
Joseph J. Burke......... 0 0 27,000/ 67,000 415,620/ 545,570
Robert N. Beck.......... 0 0 251,500/ 0 5,107,278/ 0
</TABLE>
- --------
(1) The number of securities underlying exercisable and unexercisable options
is expressed in shares of Common Stock.
(2) Valuation of these options is based on the closing price of $32.75 for
Common Stock, as quoted on the New York Stock Exchange composite index on
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table and related footnotes set forth the number of securities
underlying options granted in the last fiscal year and held by the Company's
Chief Executive Officer and its four most highly compensated officers and the
value thereof.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES UNDERLYING OPTIONS GRANTED EXERCISE EXPIRATION GRANT DATE
OPTIONS GRANTED TO EMPLOYEES PRICE DATE PRESENT VALUE
NAME (#) IN FISCAL YEAR ($/SH) (1) ($) (2)
---- --------------------- --------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Theodore W. Waitt....... 150,000 4.38% $29.07 1/27/07 2,696,000
80,000 $44.75 7/22/07 2,197,000
James A. Taylor......... 32,000 1.09% $29.07 1/27/07 575,000
25,000 $44.75 7/22/07 686,000
David J. McKittrick..... 36,000 1.16% $29.07 1/27/07 647,000
25,000 $44.75 7/22/07 686,000
Joseph J. Burke......... 14,000 .65% $29.07 1/27/07 252,000
20,000 $44.75 7/22/07 549,000
Robert N. Beck (3)...... 36,000 1.16% $29.07 1/27/07 647,000
25,000 $44.75 7/22/07 686,000
</TABLE>
- --------
(1) Options granted vest 25% per year over four years.
(2) The present value of each stock option is calculated using the Black-
Scholes Multiple Option valuation formula, assuming (1) a volatility of
the Company's stock price, as quoted on the New York Stock Exchange
Composite index, equal to 0.6; (2) a range of risk-free rates of return of
5.3 to 6.9% per annum; (3) zero dividends; and (4) 3 1/2 years from the
date of vesting to the date of exercise.
(3) Options granted were terminated on December 31, 1997, the effective date
of Mr. Beck's resignation.
14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE AND
THE BOARD OF DIRECTORS REGARDING EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely of
Directors who are not employees of the Company. The Compensation Committee is
responsible for setting and administering the policies and programs that
govern both annual compensation and stock ownership programs.
The foundation of the management compensation program is based on principles
designed to align compensation with the Company's business strategy, values
and management initiatives. The program:
. Integrates compensation programs with both the Company's annual and long-
term strategic planning and measurement processes.
. Supports a performance-oriented environment that rewards actual
performance that is related to both goals and performance of the Company
as compared to industry performance levels.
. Helps attract and retain key management critical to the long-term success
of the Company.
The key components of the compensation program are base salary, annual
incentive awards and equity participation. These components are administered
with the goal of providing total compensation that is competitive in the
marketplace, recognizing meaningful differences in individual performance,
fostering teamwork and offering the opportunity to earn above-average rewards
when merited by individual and corporate performance. The marketplace is
defined by comparing the Company to a group of corporations with similar
characteristics, including industry and technology emphasis.
Using compensation survey data from the comparison group, a target for total
compensation and each of its elements--base salary, incentive awards and
equity-based compensation is established. The intent is to deliver total
compensation that will be in the mid to upper range of pay practices of peer
companies when merited by the Company's performance. To achieve this
objective, a substantial portion of management pay is delivered through
performance-related variable compensation programs which are based upon
achievement of the Company's goals. Each year, the Compensation Committee
reviews the elements of executive compensation to ensure that the total
compensation program, and each of its elements, meets the overall objectives
discussed above.
In 1997, total compensation was paid to senior management on individual
performance and on the extent to which the business plans for individual areas
of responsibility were achieved or exceeded. Base compensation was determined
by an assessment of each executive's performance, current salary in relation
to the salary range designated for the job, experience and potential for
advancement as well as by the performance of the Company. While many aspects
of performance can be measured in financial terms, the Compensation Committee
also evaluated the success of the management team in areas of performance that
cannot be measured by traditional accounting tools, including the development
and execution of strategic plans, the development of management and employees
and the exercise of leadership within the industry and in the communities that
the Company serves. All of these factors were collectively taken into account
by management and the Compensation Committee in determining the appropriate
level of base compensation and base salary increases.
The Management Incentive Plan is designed to reward senior managers when the
Company achieves certain financial objectives and when each manager's area of
responsibility meets its predetermined goals. These goals include financial
elements such as profitability, total sales and earnings per share of Common
Stock and non-financial elements such as the achievement of selected strategic
goals and the successful development of human resources. Each year, individual
incentive targets are established for incentive plan participants based on
competitive survey data. As noted above, targets are set to deliver total
compensation in the mid to upper range of competitive practice as warranted by
performance of the Company. For 1997, the targeted incentive was earned based
on the Compensation Committee's overall assessment of each participant's
achievement of the pre-determined goals discussed above.
15
<PAGE>
For several years, the Company has provided forms of equity participation as
a key part of its total programs for motivating and rewarding managers. Grants
of stock options have provided an important part of the equity link to
stockholders. Through these vehicles, the Company has encouraged its
management to obtain and hold the Company's Common Stock and stock options.
Targeted award ranges for stock option grant are determined by taking into
account competitive practice among comparison companies. Equity participation
targets are set based on established salary guidelines and level of
performance. As noted above, the target ranges are established such that
equity participation opportunities will be in the mid to upper range of pay
practices of peer companies when merited by Company and individual
performance. Actual individual awards are determined based on the established
competitive target range and the Compensation Committee's overall assessment
of individual performance. The Compensation Committee considers the amounts of
options previously granted and the aggregate size of current awards when
deciding to award additional options. In addition, during 1997 to encourage
stock ownership to a broad base of employees, the Company introduced the
GoldShares program to provide stock options to all eligible employees world-
wide.
The full Board, rather than the Compensation Committee, determines the
compensation of the Company's Chairman and Chief Executive Officer and
President and Chief Operating Officer. Based on competitive forces and 1997
performance, the Board granted Theodore W. Waitt, the Company's Chairman and
Chief Executive Officer, a base salary increase of 62.6%, effective January 1,
1998. In light of this performance and an overall assessment of his
performance, the Board determined to grant Mr. Waitt an incentive payment of
$239,850. In addition, the Board approved the compensation package offered to
induce Jeffrey Weitzen to join the Company as President and Chief Operating
Officer in January 1998. The Board will continue to determine and administer
awards granted to other eligible individuals under the 1993 Stock Option Plan
for Key Employees and the 1996 Plan.
It is the Compensation Committees policy to consider deductibility under
Section 162(m) of the Code in determining compensation arrangements for the
Company's "covered employees," and the Committee intends to optimize the
deductibility of compensation to the extent deductibility is consistent with
the objectives of the management compensation program. The Committee, however,
intends to weigh the benefits of full deductibility with the objectives of the
management compensation program and, if the Committee believes to do so is in
the best interest of the Company and its stockholders, will make compensation
arrangements which may not be fully deductible under Section 162(m). Grants of
stock options under the 1996 Plan approved by the stockholders, are expected
to qualify for deductibility under Section 162(m). The Committee expects that
the stock options granted in 1997 to the Company's elected officers will,
together with their 1997 salaries and any other compensation paid to them in
1997, qualify for deductibility. Other awards under the 1996 Plan may, but
need not, qualify for deductibility as performance-based compensation under
Section 162(m). A portion of the amount payable to Jeffrey Weitzen under this
compensation arrangement will exceed the $1,000,000 limit set by Section
162(m) of the Code, and will not qualify for deductibility under section
162(m). In approving Mr. Weitzen's arrangement, the Compensation Committee and
the Board weighed the benefits of full deductibility against the acute need of
the Company for a Chief Operating Officer of Mr. Weitzen's experience and
background, and its conviction that the arrangement agreed to was necessary to
secure Mr. Weitzen's services. Under these circumstances, the Compensation
Committee and the Board believed that the compensation arrangement with Mr.
Weitzen to be in the best interests of the Company and its stockholders.
THE COMPENSATION COMMITTEE THE BOARD OF DIRECTORS
George H. Krauss, Chairman Theodore W. Waitt Douglas L.
James W. Cravens Charles G. Carey Lacey
James F. McCann James W. Cravens James F. McCann
George H. Krauss Richard D.
Snyder
Jeffrey Weitzen
16
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on Common Stock
from the date on which Common Stock began trading on the NASDAQ National
Market, through December 31, 1997, with the S&P 500 Index and the S&P Computer
Hardware Manufacturers Index. The cumulative total return assumes that $100
was invested in each of Common Stock, the S&P Index and the S&P Computer
Hardware Manufacturers Index on December 8, 1993 (the date the Company's stock
began trading) and also assumes the reinvestment of any dividends. The
Company's index is calculated using the closing price of $9.63 for Common
Stock on December 8, 1993, as quoted on the NASDAQ National Market. Past
financial performance should not be considered a reliable indicator of future
performance, and investors should not use historical trends to anticipate
results or trends in future periods.
COMPARISON OF CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Gateway S&P 500 Index S&P Computer Hardware Mfrs.
------- ------------- ---------------------------
<S> <C> <C>
12/8/93 100 100 100
12/31/93 106 100 105
12/31/94 114 98 130
12/31/95 127 132 175
12/31/96 278 159 236
12/31/97 340 208 335
</TABLE>
17
<PAGE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
Theodore W. Waitt is the sole shareholder and director of GTN, Inc., a South
Dakota Corporation ("GTN"). Since 1994, GTN has made available to the Company
an aircraft, owned by GTN, for Company business travel. The Company reimburses
GTN for such use at the lesser of 200% of the cost of fuel, oil and other
lubricants used or $933 per flight hour, plus certain out-of-pocket expenses.
The Company paid GTN approximately $302,230 for the use of this aircraft in
1997. The Company believes its arrangement with GTN has been less costly than
the purchase of identical services from an unaffiliated party. In addition,
during 1997 the Company acquired property adjoining its headquarters building
in North Sioux City, South Dakota in order to expand its headquarters complex.
The property was acquired for a purchase price of $336,472 from Avalon
Enterprises L.L.C., all the outstanding shares of which are owned by Joan
Waitt, wife of Theodore W. Waitt. Based upon an independent appraisal of the
property before completing the acquisition Gateway believes that it paid fair
market value for the property.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on Company records, the Company believes that all its officers,
directors and greater than 10% beneficial owners complied with all applicable
filing requirements under Section 16 of the Securities Exchange Act of 1934
with respect to transactions during 1997.
OTHER INFORMATION
The Company has retained the services of UMB Bank, n.a. to assist in the
distribution of proxy materials for a fee of approximately $5,000. The Company
will bear the full expense of the preparation and mailing of this Proxy
Statement and accompanying materials. The Company will reimburse brokers,
fiduciaries and custodians for their expenses in forwarding proxy materials to
beneficial owners of Common Stock held in their names. The solicitation of
proxies will be made primarily by mail, although proxies also may be solicited
personally by telephone or other means of communication by officers, directors
and employees of the Company (for which they will receive no additional
compensation).
Proposals of stockholders that are intended to be presented at the Company's
1999 annual meeting of stockholders must be received by the Company at its
principal executive offices no later than December 7, 1998 to be considered
for inclusion in the proxy statement and proxy relating to that meeting.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997 WILL BE PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN
REQUEST TO INVESTOR RELATIONS, GATEWAY 2000, INC., MAIL DROP Y-11, 610 GATEWAY
DRIVE, P.O. BOX NO. 2000, NORTH SIOUX CITY, SOUTH DAKOTA 57049-2000.
By Order of the Board of Directors
/s/ William M. Elliott
William M. Elliott
Senior Vice President, General
Counsel
and Corporate Secretary
North Sioux City, South Dakota
April 6, 1998
18
<PAGE>
APPENDIX A
GATEWAY 2000, INC.
1996 LONG-TERM INCENTIVE EQUITY PLAN
AS AMENDED
1. Purpose. The 1996 Long-Term Incentive Equity Plan (the "Plan") is
intended to promote the long-term success of Gateway 2000, Inc. (the
"Company") and its stockholders by strengthening the Company's ability to
attract and retain highly competent managers and other selected employees and
to provide a means to encourage stock ownership and proprietary interest in
the Company.
2. Term. The Plan shall become effective upon its ratification and approval
by the affirmative vote of the holders of a majority of the securities of the
Company present or represented, and entitled to vote at, a meeting of
stockholders of the Company, and shall terminate at the close of business on
the fifth anniversary of such approval date unless terminated earlier by the
Compensation Committee (as defined in Section 3). After termination of the
Plan, no future awards may be granted, but previously granted awards shall
remain outstanding in accordance with their applicable terms and conditions
and the terms and conditions of the Plan.
3. Plan Administration. A committee (the "Compensation Committee") appointed
by the Board of Directors of the Company (the "Board") shall be responsible
for administering the Plan. The Compensation Committee shall be comprised of
two or more non-employee members of the Board who shall qualify as
disinterested persons to administer the Plan as contemplated by (1) Rule 16b-3
under the Securities and Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rules; and (2) Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Compensation Committee shall have
full and exclusive power to interpret the Plan and to adopt such rules,
regulations and guidelines for carrying out the Plan as it may deem necessary
or proper, and such power shall be executed in the best interests of the
company and in keeping with the objectives of the Plan. This power includes
but is not limited to selecting award recipients, establishing all award terms
and conditions and adopting modifications, amendments and procedures, as well
as rules and regulations governing awards under the Plan. The interpretation
and construction of any provision of the Plan or any option or right granted
hereunder and all determinations by the Compensation Committee in each case
shall be final, binding and conclusive with respect to all interested parties.
4. Eligibility. Any employee of the Company shall be eligible to receive one
or more awards under the Plan. "Company" includes any entity that is directly
or indirectly controlled by the Company or any entity in which the Company has
a significant equity interest, as determined by the Compensation Committee.
5. Shares of Common Stock Subject to the Plan. Subject to the provisions of
Section 6 of the Plan, the aggregate number of shares of Common Stock, $.01
par value, of the Company ("Shares") which may be transferred to participants
under the Plan shall be 20,800,000. The aggregate number of Shares that may be
issued under awards pursuant to Section 8.3 of the Plan shall not exceed
6,400,000 Shares, and the aggregate number of Shares that may be covered by
awards granted to any single individual under the Plan shall not exceed
1,000,000 Shares per fiscal year of the Company. Any or all of the Shares may
be granted in the form of incentive stock options ("ISOs") intended to comply
with Section 422 of the Code.
Shares subject to awards under the Plan which expire, terminate, or are
canceled prior to exercise or, in the case of awards granted under Section
8.3, do not vest, shall thereafter be available for the granting of other
awards. Shares which have been exchanged by a participant as full or partial
payment to the Company in connection with any award under the Plan, also shall
thereafter be available for the granting of other awards. In instances where a
stock appreciation right ("SAR") or other award is settled in cash, the Shares
covered by such award shall remain available for issuance under the Plan.
Likewise, the payment of cash dividends and dividend equivalents paid in cash
in conjunction with outstanding awards shall not be counted against the Shares
available for issuance. Any Shares that are issued by the company, and any
awards that are granted through the assumption of, or in substitution for,
outstanding awards previously granted by acquired entity shall not be counted
against the Shares available for issuance under the Plan.
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Any Shares issued under the Plan may consist in whole or in part of
authorized and unissued Shares or of treasury Shares, and no fractional Shares
be issued under the Plan. Cash may be paid in lieu of any fractional Shares in
settlements of awards under the Plan.
6. Adjustments. In the event of any stock dividend, stock split, combination
or exchange of Shares, merger, consolidation, spin-off, recapitalization or
other distribution (other than normal cash dividends) of Company assets to
stockholders, or any other change affecting Shares or Share price, such
proportionate adjustments, if any, as the Compensation Committee in its
discretion may deem appropriate to reflect such change shall be made with
respect to (1) the aggregate number of Shares that may be issued under the
Plan, the aggregate number of Shares that may be issued pursuant to Section
8.3 of the Plan, and the aggregate number of Shares that may be granted to any
single individual under the Plan; (2) each outstanding award made under the
Plan; and (3) the exercise price per Share for any outstanding stock options,
SAR's or similar awards under the Plan.
7. Fair Market Value. "Fair Market Value," for all purposes under the Plan,
shall mean the closing price of a Share as reported daily in The Wall Street
Journal or similar, readily available public source for the date in question.
If no sales of Shares were made on such date, the closing price of a Share as
reported for the preceding day on which a sale of Shares occurred shall be
used.
8. Awards. The Compensation Committee shall determine the type or types of
award(s) to be made to each participant. Awards may be granted singly, in
combination or in tandem. Awards also may be made in combination or in tandem
with, in replacement of, as alternatives to or as the payment form for grants
or rights under any other compensation plan or individual contract or
agreement of the Company including those of any acquired entity. The types of
awards that may be granted under the Plan are:
8.1. Stock Options. A stock option is a right to purchase a specified number
of Shares during a specified period as determined by the Compensation
Committee. The purchase price per Share for each stock option shall be not
less than 100% of Fair Market Value on the date of grant, except if a stock
option is granted retroactively in tandem with or as a substitution for a SAR,
the exercise price may be no lower than the Fair Market Value of a Share as
set forth in award agreements for such tandem or replaced SAR. A stock option
may be in the form of an ISO which, in addition to being subject to applicable
terms, conditions and limitations established by the Compensation Committee,
complies with Section 422 of the Code. The price at which Shares may be
purchased under a stock option shall be paid in full by the optionee at the
time of the exercise in cash or such other method permitted by the
Compensation Committee, including (1) tendering Shares (with prior approval of
the Chief Executive Officer if Shares are owned less than six months); (2)
authorizing a third party to sell the Shares (or a sufficient portion thereof)
acquired upon exercise of a stock option and assigning the delivery to the
Company of a sufficient amount of the sale proceeds to pay for all the Shares
acquired through such exercise; or (3) any combination of the above.
8.2. SARs. A SAR is a right to receive a payment, in cash and/or Shares,
equal to the excess of the Fair Market Value of a specified number of Shares
on the date the SAR is exercised over the Fair Market Value on the date the
SAR was granted as set forth in the applicable award agreement; except that if
a SAR is granted retroactively in tandem with or in substitution for a stock
option, the designated Fair Market Value set forth in the award agreement
shall be no lower than the Fair Market Value of a Share for such tandem or
replaced stock option.
8.3. Stock Awards. A stock award is a grant made or denominated in Shares or
units equivalent in value to Shares. All or part of any stock award may be
subject to conditions and restrictions established by the Compensation
Committee, as set forth in the applicable award agreement, which may include,
but are not limited to, continuous service with the Company and/or the
achievement of performance goals. The performance criteria that may be used by
the Compensation Committee in granting a stock award contingent on performance
goals shall consist of earnings, earnings per share, revenues, profit growth,
profit-related return ratios, cash flow or total stockholder return. The
Compensation Committee may select one criterion or multiple criteria for
measuring performance, and the measurement may be stated in absolute terms or
relative to comparable companies.
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<PAGE>
Notwithstanding anything to the contrary contained in the Plan, the
Compensation Committee may grant a stock award which is not contingent on
performance goals or which is contingent on performance goals other than those
specified in this Section 8.3, provided the Compensation Committee shall have
determined that such award is not required to satisfy the requirements for
"qualified performance-based compensation" within the meaning of Section
162(m) of the Code.
9. Dividends and Dividend Equivalents. The Compensation Committee may
provide that any awards under the Plan earn dividends or dividend equivalents.
Such dividends or dividend equivalents may be paid currently or may be
credited to a participant's account. Any crediting of dividends or dividend
equivalents may be subject to such restrictions and conditions as the
Compensation Committee may establish, including reinvestment in additional
Shares or Share equivalents.
10. Deferrals and Settlements. Payment of awards may be in the form of cash,
stock, other awards or combinations thereof as the Compensation Committee
shall determine at the time of grant, and with such restrictions as it may
impose. The Compensation Committee also may require or permit participants to
elect to defer the issuance of Shares or the settlement of awards in cash
under such rules and procedures as it may establish under the Plan. It also
may provide that deferred settlements include the payment or crediting of
interest on the deferral amounts, or the payment or crediting of dividend
equivalents where the deferral amounts are denominated in Shares.
11. Transferability and Exercisability. Awards granted under the Plan shall
not be transferable or assignable other than (1) by will or the laws of
descent and distribution; (2) by gift or other transfer of an award to any
trust or estate in which the original award recipient or such recipient's
spouse or other immediate relative has a substantial beneficial interest, or
to a spouse or other immediate relative, provided that any such transfer is
permitted by Rule 16B-3 under the Exchange Act as in effect when such transfer
occurs and the Board does not rescind this provision prior to such transfer;
or (3) pursuant to a qualified domestic relations order (as defined by the
Code). However, any award so transferred shall continue to be subject to all
the terms and conditions contained in the instrument evidencing such award.
In the event that a participant terminates employment with the Company to
assume a position with a governmental, charitable, educational or other non-
profit institution, the Compensation Committee may subsequently authorize a
third party, including but not limited to a "blind" trust, to act on behalf of
and for the benefit of such participant regarding any outstanding awards held
by the participant subsequent to such termination of employment. If so
permitted by the Compensation Committee, a participant may designate a
beneficiary or beneficiaries to exercise the rights of the participant and
receive any distribution under the Plan upon the death of the participant.
12. Award Agreements. Awards under the Plan shall be evidenced by agreements
as approved by the Compensation Committee that set forth the terms, conditions
and limitations for each award, which may include the term of an award (except
that in no event shall the term of any ISO exceed a period of ten years from
the date of its grant), the provisions applicable in the event the
participant's employment terminates, and the Compensation Committee's
authority to unilaterally or bilaterally amend, modify, suspend, cancel or
rescind any award. The Compensation Committee need not require the execution
of any such agreement, in which case acceptance of the award by the
participant shall constitute agreement to the terms of the award.
13. Foreign Participation. In order to assure the viability of awards
granted to participants employed in foreign countries, the Compensation
Committee may provide for such special terms as it may consider necessary or
appropriate to accommodate differences in local law, tax policy or custom.
Moreover, the Compensation Committee may approve such supplements to, or
amendments, restatements or alternative versions of the Plan as it may
consider necessary or appropriate for such purposes without thereby affecting
the terms of the Plan as in effect for any other purposes; provided that, no
such supplements, amendments, restatements or alternative versions shall
increase the Share limitations contained in Section 5 of the Plan.
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<PAGE>
14. Acceleration and Settlement of Awards. The Compensation Committee shall
have the discretion, exercisable at any time before a sale, merger,
consolidation, reorganization, liquidation or change of control of the
Company, as defined by the Compensation Committee, to provide for the
acceleration of vesting and for settlement, including cash payment of an award
granted under the Plan, upon or immediately before the effectiveness of such
event. However, the granting of awards under the Plan shall in no way affect
the right of the Company to adjust, reclassify, reorganize or otherwise change
its capital or business structure, or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any portion of its businesses or assets.
14A. Change of Control
14A.1. Additional Option Grant; Substituted Options. In the event of a
Change of Control as defined in Section 14A.2(a):
(a) All employees who received a grant of options under this Plan in the
twelve months preceding the effective date of such Change in Control shall
receive a grant of options, effective as of the day preceding such Change
in Control, equal to the aggregate number of options granted to such
employee in such twelve-month period, provided that any such grant shall
comply with Section 162 (m) of the Code. All such options shall vest 100%
twenty-four months from the date of grant unless vesting is accelerated as
provided below.
(b) All outstanding options that are not exercisable on the date of a
Change in Control, including any options granted pursuant to paragraph (a)
above, shall immediately become exercisable in full upon such Change in
Control unless, in the case of a Change in Control described in Section
14A.2 (a) (i) or (iii), the acquiring company has agreed in writing to
assume the option obligation by substituting options of its own which are
comparable in all respects to the outstanding options under the Plan
(including the provisions of paragraph (a) (iii) below), with each such
substituted option appropriately adjusted to apply to the number and class
of securities which would have been issuable to the holder thereof had the
option been exercised immediately prior to such Change in Control
(including adjustments to the number and exercise price of such options).
(iii) Notwithstanding anything to the contrary in the foregoing or
elsewhere in the Plan, in the event of a participant's Involuntary
Termination within eighteen (18) months of the effective date of a Change
in Control described in Section 14A.2 (a) (i) or (iii), such termination
shall be treated as approved by the Compensation Committee for purposes of
all of such participant's option award agreements, and all of such
participant's then outstanding nonexercisable options shall become
exercisable in full as of midnight of the day before such termination.
14A.2 Definitions. (a) For purposes hereof, the term "Change in Control"
shall mean (i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company), of beneficial ownership (within the meaning of Rule 13d-3 of the
1934 Act) of securities possessing more than fifty percent (50%) of the total
combined voting power of Company's outstanding securities pursuant to a tender
or exchange offer made directly to the Company's stockholders, or (ii) a
change in the composition of the board over a period of thirty-six (36)
consecutive months or less such that a majority of the Board members ceases to
be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been initially
elected or nominated for election as Board members during such period by at
least a majority of the board members described in clauses (A) and (B) who
were still in office at the time such election or nomination was approved by
the Board, (iii) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Company's
outstanding securities are transferred to a person or persons different from
the persons holding those securities immediately prior to such transaction, or
(iv) the sale, transfer or other disposition of all or substantially all of
the Company's assets or the complete liquidation or dissolution of the
Company.
(b) For purposes hereof, the term "Involuntary Termination" shall mean any
of the following changes in the terms and conditions of an employee's
employment:
(i) an involuntary termination of employment for any reason other than
death, entitlement to benefits under the Company's long-term disability
plan or Cause;
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<PAGE>
(ii) a reduction in his or her level of compensation (including base
salary), fringe benefits and participation in corporate performance based
bonus or incentive programs;
(iii) a change in his or her position with the Company which materially
reduces his or her level of job responsibility and/or authority; or
(iv) without the employee's consent, the relocation of the employee's
regular assigned workplace by more than 50 additional miles from his or her
residence.
(c) For purposes hereof, the term "Cause" shall mean: (i) the willful and
continued failure of an employee to perform substantially the employee's
duties with the Company or an affiliate (other than a failure resulting from
an incapacity due to physical or mental illness), after written notice
specifically identifying any such failures has been delivered to the employee
and the employee has been given an opportunity to cure such failures; (ii) the
willful engaging by the employee in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company; (iii) the commission
of any act of fraud, embezzlement or dishonesty by the participant; or (iv)
any unauthorized use or disclosure by such person of confidential information
or trade secrets of the Company or any subsidiary of the Company.
14A.3 Parachute Payments. In the event that the aggregate present value of
payments to a participant under this Plan and/or under any other plan,
program, or arrangement maintained by the Company constitutes an "excess
parachute payment" (within the meaning of Code Section 280G(b) (1)) and the
excise tax on such payment would cause the net parachute payments (after
taking into account federal and state income and excise taxes) to which such
participant would otherwise be entitled to be less than what such participant
would have netted (after taking into account federal and state income taxes)
had the present value of such participant's total parachute payments equaled
$1.00 less than three times his or her "base amount" (within the meaning of
Code Section 280G (b) (3) (A)), unless the Company and the affected
individual(s) otherwise have agreed by separate contract or award, his or her
total "parachute payments" (within the meaning of Code Section 280G (b) (2)
(A)) shall be reduced (but by the minimum possible amount) so that their
aggregate present value equals $1.00 less than three times such base amount.
For purposes of this calculation, it shall be assumed that such participant's
tax rate will be the maximum marginal federal and state income tax rate on
earned income, with such maximum federal rate to be computed with regard to
Code Section 1(g), if applicable. In the event that the participant and the
Company are unable to agree as to the amount of the reduction described above,
if any, the participant shall select a law firm or accounting firm from among
those regularly consulted (during the twelve-month period immediately prior to
the relevant change of control) by the Company regarding federal income tax
matters, and such law firm or accounting firm shall determine the amount of
such reduction and such determination shall be final and binding upon the
participant and the Company.
15. Plan Amendment. The Plan may be amended by the Compensation Committee as
it deems necessary or appropriate to better achieve the purposes of the Plan,
except that no such amendment shall be made without the approval of the
Company's stockholders which would increase the number of Shares available for
issuance in accordance with Sections 5 and 6 of the Plan, or cause the Plan
not to comply with Rule 16b-3 (or any successor rule) under the Exchange Act
or Section 162(m) of the Code. The Board may suspend the Plan or terminate the
Plan at any time; provided that, that no such action adversely affects any
outstanding benefit. Any Shares authorized under Section 5 (or any amendment
thereof) with respect to which no Award is granted prior to termination of the
Plan, or with respect to which an Award is terminated, forfeited or canceled
after termination of the Plan, shall automatically be transferred to any
subsequent long-term incentive equity plan for employees of the Company.
16. Tax Withholding. The Company shall have the right to deduct from any
settlement of an award made under the Plan, including the delivery or vesting
of Shares, a sufficient amount to cover withholding of any federal, state or
local taxes required by law, or to take such other action as may be necessary
to satisfy any such withholding obligations. The Compensation Committee may,
in its discretion and subject to such rules as it may adopt, permit
participants to use Shares to satisfy required tax withholding (with prior
approval of the Chief Executive Officer if Shares are owned less than six
months) and such Shares shall be valued at the Fair Market Value as of the
settlement date of the applicable award.
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17. Registration of Shares. Notwithstanding any other provision of the Plan,
the Company shall not be obligated to offer or sell any Shares unless such
Shares are at that time effectively registered or exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act") and the
offer and sale of such Shares are otherwise in compliance with all applicable
federal and state securities laws and the requirements of any stock exchange
or similar agency on which the Company's securities may then be listed or
quoted. The Company shall have no obligation to register the Shares under the
federal securities laws or take any other steps as may be necessary to enable
the Shares to be offered and sold under federal or other securities laws.
Prior to receiving Shares, a Plan participant may be required to furnish
representations or undertakings deemed appropriate by the Company to enable
the offer and sale of the Shares or subsequent transfers of any interest in
such Shares to comply with the Securities Act and other applicable securities
laws. Certificates evidencing Shares shall bear any legend required by, or
useful for the purposes of compliance with, applicable securities laws, this
Plan or award agreements.
18. Other Benefit and Compensation Programs. Unless otherwise specifically
determined by the Compensation Committee, settlements of awards received by
participants under the Plan shall not be deemed a part of a participant's
regular, recurring compensation for purposes of calculating payments or
benefits from any Company benefit plan, severance program or the severance pay
law of any country. Further, the Company may adopt other compensation
programs, plans or arrangements as it deems appropriate or necessary.
19. Unfunded Plan. Unless otherwise determined by the Compensation
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a separate fund or funds. The Plan shall not establish any
fiduciary relationship between the Company and any participant or other
person. To the extent any person holds any rights by virtue of an award
granted under the Plan, such rights shall be no greater than the rights of an
unsecured general creditor of the Company.
20. Use of Proceeds. The cash proceeds received by the Company from the
issuance of Shares pursuant to awards under the Plan shall constitute general
funds of the Company.
21. Regulatory Approvals. The implementation of the Plan, the granting of
any award under the Plan, and the issuance of Shares upon the exercise or
settlement of any award shall be subject to the Company's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the awards granted under it or the Shares issued pursuant to
it.
22. Employment Rights. The Plan does not constitute a contract of
employment, and participation in the Plan will not give a participant the
right to continue in the employ of the Company on a full-time, part-time or
any other basis. Participation in the Plan will not give any participant any
right or claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.
23. Governing Law. The validity, construction and effect of the Plan and any
actions taken or relating to the Plan shall be determined in accordance with
the laws of the State of South Dakota and applicable federal law.
24. Successors and Assigns. The Plan shall be binding on all successors and
assigns of a participant, including, without limitation, the estate of such
participant and the executor, administrator or trustee of such estate, or any
receiver or trustee in bankruptcy or representative of the participant's
creditors.
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PROXY PROXY
GATEWAY 2000, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS, THURSDAY, MAY 21, 1998
The undersigned hereby appoints William M. Elliott and Stephanie G. Heim, or
either of them (the "Appointed Proxies"), with power of substitution to each,
to vote all shares of the undersigned at the annual meeting of stockholders of
Gateway 2000, Inc. to be held on Thursday, May 21, 1998 at 9:00 a.m., Central
Time (the "Annual Meeting"), or at any adjournment(s) thereof.
THIS PROXY, SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE VOTED AS
DIRECTED. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED (1)
FOR THE ELECTION OF NAMED NOMINEES AS DIRECTORS; (2) FOR APPROVAL OF THE
AMENDMENT TO THE GATEWAY 2000, INC. 1996 LONG-TERM INCENTIVE EQUITY PLAN; (3)
IN ACCORDANCE WITH THE JUDGMENT OF THE APPOINTED PROXIES AS TO SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
The undersigned ratifies all that the Appointed Proxies, or their
substitutes, may lawfully do by virtue hereof, and revokes any proxies
previously given to vote at the Annual Meeting or any adjournment thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
. CUT OR TEAR ALONG PERFORATED EDGE .
GATEWAY 2000, INC.
ANNUAL MEETING
Sioux City Convention Center
801 Fourth Street
Sioux City, Iowa
Thursday, May 21, 1998
9:00 a.m., Central Time
VOTE BY INTERNET
Your Internet vote is quick, convenient and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at http://www.umb.com/proxy and follow
the instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to the
same extent as if you marked, signed, dated and returned the proxy card.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, May 20, 1998.
If you vote by Internet, please do not return your proxy by mail.
THANK YOU FOR YOUR VOTE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTING EACH OF THE DIRECTORS.
1.ELECTION OF DIRECTORS--
Nominees: Jeffrey Weitzen and Douglas L. Lacey as Class II directors of the
Company for a term of three (3) years.
For All
For Withheld Except
[_] [_] [_]
- -----------------------------------
(Except nominee(s) written above.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
2. Approval of the Amendment to the Gateway 2000, Inc. 1996 Long-Term
Incentive Equity Plan.
For Against Abstain
[_] [_] [_]
If any other business is brought before the Annual Meeting or any
adjournment(s) thereof, this Proxy will be voted in the discretion of the
Appointed Proxies.
Dated:
----------------------------------------
- ----------------------------------------------
(Signature)
- ----------------------------------------------
(Signature)
PLEASE SIGN EXACTLY AS NAME(S) APPEAR TO THE LEFT. WHEN SIGNING IN FIDUCIARY
OR REPRESENTATIVE CAPACITY, PLEASE ADD YOUR FULL TITLE. IF SHARES ARE REGIS-
TERED IN MORE THAN ONE NAME, ALL HOLDERS MUST SIGN. IF SIGNATURE IS FOR A COR-
PORATION, THE HANDWRITTEN SIGNATURE AND TITLE OF AN AUTHORIZED OFFICER ARE RE-
QUIRED, TOGETHER WITH THE FULL CORPORATE NAME.
- --------------------------------------------------------------------------------
. CUT OR TEAR ALONG PERFORATED EDGE .
VOTE BY INTERNET
. Your Internet vote is quick, convenient and your vote is immediately
submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statement.
2. Visit our Internet voting site at http://www.umb.com/proxy and follow
the instructions on the screen.
Your Internet vote authorizes the named proxies to vote your shares to the
same extent as if you marked, signed, dated and returned the proxy card.
Please note that all votes cast by Internet must be submitted prior to 5:00
p.m. Central Time, May 20, 1998.
If you vote by Internet, please do not return your proxy by mail.
THANK YOU FOR YOUR VOTE.
<PAGE>
PROXY Gateway 2000, Inc. PROXY
Proxy for Annual Meeting of Stockholders, Thursday, May 21, 1998
The undersigned hereby appoints William M. Elliott and Stephanie G. Heim,
or either of them (the "Appointed Proxies"), with power of substitution to each,
to vote all shares of the undersigned at the annual meeting of stockholders of
Gateway 2000, Inc. to be held on Thursday, May 21, 1998 at 9:00 a.m., Central
Time (the "Annual Meeting"), or at any adjournment(s) thereof.
THIS PROXY, SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE VOTED AS
DIRECTED. IF NO DIRECTION TO THE CONTRARY IS INDICATED, IT WILL BE VOTED (1) FOR
THE ELECTION OF NAMED NOMINEES AS DIRECTORS; (2) FOR APPROVAL OF THE AMENDMENT
TO THE GATEWAY 2000, INC. 1996 LONG-TERM INCENTIVE EQUITY PLAN; (3) IN
ACCORDANCE WITH THE JUDGMENT OF THE APPOINTED PROXIES AS TO SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
The undersigned ratifies all that the Appointed Proxies, or their
substitutes, may lawfully do by virtue hereof, and revokes any proxies
previously given to vote at the Annual Meeting or any adjournment thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
CUT OR TEAR ALONG PERFORATED EDGE
GATEWAY 2000, INC.
ANNUAL MEETING
Sioux City Convention Center
801 Fourth Street
Sioux City, Iowa
Thursday, May 21, 1998
9:00 a.m., Central Time
<PAGE>
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTING EACH OF THE DIRECTORS.
<S> <C>
For All THE BOARD OF DIRECTORS RECOMMENDS
For Withheld Except A VOTE FOR PROPOSAL 2. For Against Abstain
1.ELECTION OF DIRECTORS-- [ ] [ ] [ ] [ ] [ ] [ ]
Nominees: Jeffrey Weitzen and Douglas L. Lacey 2. Approval of the Amendment to the Gateway 2000,
as Class II directors of the Company for a term of Inc. 1996 Long-Term Incentive Equity Plan.
three (3) years.
- ---------------------------------- If any other business is brought before the Annual
(Except nominee(s) written above.) Meeting or any adjournment(s) thereof, this Proxy will
be voted in the discretion of the Appointed Proxies.
Dated: __________________________________________
-------------------------------------------------
(Signature)
-------------------------------------------------
(Signature)
PLEASE SIGN EXACTLY AS NAME(S) APPEAR TO THE
LEFT. WHEN SIGNING IN FIDUCIARY OR REPRESENTATIVE
CAPACITY, PLEASE ADD YOUR FULL TITLE. IF SHARES
ARE REGISTERED IN MORE THAN ONE NAME, ALL HOLDERS
MUST SIGN. IF SIGNATURE IS FOR A CORPORATION, THE
HANDWRITTEN SIGNATURE AND TITLE OF AN AUTHORIZED
OFFICER ARE REQUIRED, TOGETHER WITH THE FULL
CORPORATE NAME.
- ------------------------------------------------------------------------------------------------------------------------------------
CUT OR TEAR ALONG PERFORATED EDGE
</TABLE>
<PAGE>
INSTRUCTION CARD Gateway 2000, Inc. INSTRUCTION CARD
P.O. Box 2000, N. Sioux City, SD 57049-2000
VOTING INSTRUCTIONS TO: NORWEST BANK MINNESOTA, N.A., AS TRUSTEE OF
THE GATEWAY 2000, INC. RETIREMENT SAVINGS PLAN ("PLAN")
I hereby direct that the voting rights pertaining to shares of Common Stock
of Gateway 2000, Inc. held by the Trustee and attributable to my account in the
above-described plan shall be exercised at the Annual Meeting of Shareholders of
the Company to be held May 21, 1998, or at any adjournment of such meeting, in
accordance with the instructions below, to vote upon Proposals 1 and 2 and on
other business that may properly come before the meeting.
IF THE INSTRUCTION CARD IS NOT RETURNED OR IF NO DIRECTION IS GIVEN WHEN
THE DULY EXECUTED INSTRUCTION CARD IS RETURNED, THE SHARES CREDITED IN THE
PARTICIPANT'S GATEWAY 2000 COMMON STOCK FUND ACCOUNT WILL BE VOTED ON EACH
BALLOT ITEM IN ACCORDANCE WITH THE TERMS OF THE PLAN.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS INSTRUCTION CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
CUT OR TEAR ALONG PERFORATED EDGE
<PAGE>
<TABLE>
<CAPTION>
GATEWAY 2000, INC.
<S> <C>
For All
For Withheld Except For Against Abstain
1. ELECTION OF DIRECTORS IN CLASS II-- [ ] [ ] [ ] 2. Approval of the Amendment to the [ ] [ ] [ ]
Nominees: Jeffrey Weitzen and Gateway 2000, Inc. 1996 Long-Term
Douglas L. Lacey Incentive Equity Plan.
- ----------------------------------
(Except nominee(s) written above.)
-------------------------------------------------
Participant's Signature
-------------------------------------------------
Date
(PLEASE COMPLETE, DATE AND SIGN EXACTLY AS YOUR
NAME APPEARS. RETURN CARD PROMPTLY IN
ACCOMPANYING ENVELOPE.)
- ------------------------------------------------------------------------------------------------------------------------------------
CUT OR TEAR ALONG PERFORATED EDGE
</TABLE>
