<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION NO. 333-79751
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NETGATEWAY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 87-0591719
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
NETGATEWAY, INC.
300 OCEANGATE
5TH FLOOR
LONG BEACH, CALIFORNIA 90802
(Address of principal place of business)
------------------------------
KEITH D. FREADHOFF
Chairman of the Board of Directors
ROY W. CAMBLIN III
Chief Executive Officer and Chief Information Officer
DONALD M. CORLISS, JR.
President
DAVID BASSETT-PARKINS
Chief Financial Officer and Chief Operating Officer
Netgateway, Inc.
300 Oceangate
5th Floor
Long Beach, California 90802
(562)308 0010/(562)308 0021 (Telecopy)
[email protected]
[email protected]
[email protected]
[email protected]
(Name, address, and telephone number of principal executive offices and agent
for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT STEVEN BROWN, ESQ. STEPHEN WEISS, ESQ.
AMOS S. EDELMAN, ESQ. LINDA MINTZ, ESQ.
KIM ELLEN LEFKOWITZ, ESQ. JEFFERY BAHNSEN, ESQ.
Brock Silverstein LLC Greenberg Traurig
800 Third Avenue Met Life Building
21st Floor 200 Park Avenue
New York, New York 10022 New York, New York 10166
(212) 371-2000 / (212) 371-5500 (Telecopy) (212) 801-9200 / (212) 801-6400 (Telecopy)
[email protected] [email protected]
[email protected] [email protected]
[email protected] [email protected]
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities pursuant to
Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
SEE ATTACHED PAGE.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8
(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8
(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE
<S> <C> <C> <C> <C>
3,450,000
Common Stock, par value, $.001 per share.......... shares(2) $10.00 $34,500,000 $9,591
300,000
Representative's Warrants......................... warrants(3) $0.001 $300.00 $0.08
Common Stock, par value, $.001 per share, issuable
upon exercise of the Representative's
Warrants........................................ 300,000 shares(4) $16.50 $4,950,000 $1,376.10
Total............................................. -- -- $39,450,300 $10,967.18(5)
</TABLE>
(1) Estimated solely for purposes of calculation of the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
(2) Includes 450,000 shares of the Common Stock, par value $.001 per share, of
the Registrant, which the underwriters have the option to purchase solely to
cover over allotments, if any.
(3) To be acquired by the Representative.
(4) Issuable upon exercise of the Representative's Warrants.
(5) A filing fee of $12,908.84 was previously paid.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
3,000,000 SHARES
[LOGO]
NETGATEWAY, INC.
COMMON STOCK
------------------
We are a provider of turn-key electronic commerce services designed to
enable clients to extend their business to the Internet. Our Internet Commerce
Center provides our clients with a variety of features ranging from simple
Internet storefronts to complex systems designed to enable them to conduct
business-to-business electronic commerce by means of the Internet.
Our common stock currently trades on the OTC Bulletin Board under the symbol
"NGWY." We have applied to have the common stock quoted on the Nasdaq National
Market under the symbol "NGWY." On November 9, 1999, the last reported sale
price of our common stock on the OTC Bulletin Board was $7.812. We anticipate
that the public offering price per share will be between $7.00 and $9.00.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
Public Offering Price................................. $ $
Underwriting Discounts and Commissions................ $ $
Proceeds, before expenses, to Netgateway.............. $ $
</TABLE>
The underwriters may, under certain circumstances, for 45 days after the
date of this prospectus, purchase up to an additional 450,000 shares of common
stock from us at the public offering price, less underwriting discounts and
commissions.
------------------------
CRUTTENDEN ROTH INCORPORATED
PENNSYLVANIA MERCHANT GROUP, LTD.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE>
INSIDE FRONT COVER PAGE 1
PICTURE OF LIGHTSWITCH FOLLOWED BY "SWITCH ON," PICTURE OF ELECTRICAL PLUG
FOLLOWED BY "PLUG INTO," PICTURE OF KEY FOLLOWED BY "UNLOCK," AND PICTURE OF
FAUCET FOLLOWED BY "TURN ON," ALL FOLLOWED BY ECOMMERCE . . ."
INSIDE COVER PAGE 2
PICTURES OF WEB PAGES OF CUSTOMERS OF NETGATEWAY AND CUSTOMER LOGOS.
INSIDE COVER PAGE 3
MATRIX OF TRANSACTION VOLUME AND BUSINESS RULE COMPLEXITY DESCRIBING
NETGATEWAY'S INTERNET COMMERCE CENTER WITH STATEMENT ". . . THE INTERNET
CONVENTION CENTER-TM- (ICC) COVERS THE ENTIRE SPECTRUM OF ECOMMERCE." FOLLOWED
BY LOGOS OF CUSTOMERS OF NETGATEWAY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary......................................................................................... 3
Risk Factors............................................................................................... 10
Use of Proceeds............................................................................................ 25
Price Range of Common Stock................................................................................ 27
Dividend Policy............................................................................................ 27
Capitalization............................................................................................. 28
Dilution................................................................................................... 29
Selected Financial Data.................................................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 33
Business................................................................................................... 39
Management................................................................................................. 53
Principal Stockholders..................................................................................... 67
Related Party Transactions................................................................................. 69
Description of Securities.................................................................................. 71
Shares Eligible for Future Sale............................................................................ 73
Underwriting............................................................................................... 74
Legal Matters.............................................................................................. 77
Experts.................................................................................................... 78
Additional Information..................................................................................... 78
Index to Financial Statements.............................................................................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND
OUR BUSINESS AND THIS OFFERING FULLY, YOU SHOULD READ THIS ENTIRE PROSPECTUS
CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THE RELATED NOTES BEGINNING ON
PAGE F-1. WHEN WE REFER IN THIS PROSPECTUS TO "NETGATEWAY," "THE COMPANY," "WE,"
"OUR," AND "US," WE MEAN NETGATEWAY, INC., A DELAWARE CORPORATION, TOGETHER WITH
OUR SUBSIDIARIES AND THEIR RESPECTIVE PREDECESSORS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO NETGATEWAY. SEE
"CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS" ON PAGE 24.
NETGATEWAY
OUR BUSINESS
We provide turn-key electronic commerce services designed to enable clients
to extend their business to the Internet to conduct commercial transactions
between business enterprises. The hub of our electronic commerce solution is our
proprietary Internet Commerce Center, which consists of the hardware,
proprietary and licensed software, and the related technical services necessary
for our clients to transact electronic commerce, known in our industry as
eCommerce. We also design and build custom interfaces, or SPOKES, to connect
business clients to the ICC. Our ICC provides a continuum of increasingly
sophisticated and technologically complex solutions, ranging from a simple
Internet storefront advertising their products and taking orders through e-mail
to a highly complex system of private Websites, known as EXTRANETS. These
extranets are accessible only by clients and selected outsiders, such as their
customers, suppliers, and vendors, to interact and transact business-to-business
electronic commerce.
In July 1999, we formed CableCommerce, a new operating division which
focuses upon providing electronic commerce services and solutions to cable
television operators. Typically, CableCommerce will design, develop, host, and
manage branded Internet-based shopping malls in the markets served by the cable
television system operator featuring businesses local to each of these markets.
In addition, CableCommerce offers local and regional classified advertisements,
community calendars, and coupons, provides mall content, trains cable television
system sales people, and offers storefront creation and maintenance services to
the cable television system's subscribers. To date, we have entered into
contracts to provide these services with MediaOne, CableOne, Wireless One, and
Frontiervision Media Services. See "Prospectus Summary--Significant Strategic
Relationships."
OUR SERVICES
Our services currently include
- Web site development and design, including the development of electronic
storefronts for the conduct of electronic commerce on the Internet,
- Internet-based "shopping mall" and secure client extranet development and
design,
- transaction processing and clearing through standardized order formats and
commercial terms,
- data warehousing and transaction reporting,
- customer support services, and
- connectivity solutions.
We believe that our electronic commerce services have a number of advantages
over other currently available alternatives, in that:
- our customers do not invest in hardware, software, and staffing, but
rather connect to our existing hardware and software infrastructure, which
we believe is a highly economical method to obtain and maintain an
electronic commerce presence;
3
<PAGE>
- clients with existing Web sites can maintain their investment in the
creation of that presence while seamlessly adding electronic commerce
capabilities;
- because our infrastructure enables our customers to access a continuum of
sophisticated and technologically complex electronic commerce solutions,
we can offer incremental services to our clients through the activation of
additional portions of our proprietary software in response to client
growth or commercial requirements quickly and cost-effectively; and
- because our proprietary and other software resides only on our servers, we
can offer clients easy access to additional functionality on a test or
temporary basis in order to permit our clients to try new or additional
services with their respective customers on their Web sites, and can
provide real time updates, patches, and fixes to software with no
additional effort by the client.
OUR MARKET
International Data Corp., an industry research firm, forecasts that the
market for Internet and electronic commerce services worldwide will grow from
$4.6 billion in 1997 to $43.7 billion by 2002. Forrester Research, another
technology industry research firm, estimates that the market for Internet and
electronic commerce services will grow from $5.4 billion in 1998 to
$32.7 billion by 2002. These projections represent a compound annual growth rate
of more than 55% over these periods.
As a result of the recent growth of electronic commerce and its acceptance
as a mainstream medium for commercial transactions, businesses are investing in
the strategic use of Internet solutions to transform their core business and
technology strategies. This, in turn, has created a significant and growing
demand for third-party Internet professional services and has resulted in a
proliferation of companies offering specialized solutions, such as connectivity,
transaction reporting, security, and Web site design to business customers. This
specialization has resulted in a fragmented market that often requires the
business customer to seek solutions from a number of different providers using
differing, or even contradictory, strategies, models, and designs.
SIGNIFICANT STRATEGIC RELATIONSHIPS
MEDIAONE. In July 1999, we entered into a strategic relationship with
MediaOne, a leading cable television operator, under which we will design,
develop, host, and manage Internet-based shopping malls in each of MediaOne's
markets. These markets currently consist of more than five million households.
These shopping malls will be branded with the MediaOne name, brand, and image,
will feature businesses local to each market, and will offer additional online
services, such as classified advertisements, local community events calendars,
and coupons. MediaOne has agreed to contribute commercial advertising time on
their cable systems in order to promote these malls. In connection with this
relationship, MediaOne acquired 50,000 shares of our common stock and warrants,
to purchase up to an aggregate of 200,000 shares of our common stock, at an
exercise price per share equal to the current market price on the date of the
vesting of these warrants. These warrants vest in four installments upon the
satisfaction of milestones relating to the scope of the launch of these
Internet-based shopping malls. See "Business--Clients and Strategic
Relationships."
CABLEONE. In August 1999, we entered into a cable reseller and mall
agreement with CableOne, a large cable television operator, under which we will
design and develop an Internet-based shopping mall, to be branded with the
CableOne name, brand, and image, and will offer our storefront creation and
maintenance services to CableOne's subscribers. We will also be responsible for
marketing support, including development of mall content, training of CableOne
sales people, and production of advertising to promote their services. CableOne
will promote this mall with a minimum of 400 cablecasts per broadcast month in
each broadcast market where the mall services are offered.
WIRELESS ONE. In June 1999, we entered into a reseller and mall agreement
with Wireless One, Inc. under which we will design and develop an Internet-based
shopping mall, to be branded with the Wireless One name, brand, and image, and
will offer our storefront creation and maintenance services
4
<PAGE>
to Wireless One's subscribers. We will also be responsible for marketing
support, including development of mall content, training of Wireless One sales
people, development of Wireless One branded collateral material and periodic
distribution and updating of advertising spots to promote their services.
Wireless One will promote this mall with a total of 1,000 30-second spots every
month jointly developed by us and Wireless One in all systems in which it is
able to provide advertising.
FRONTIERVISION MEDIA SERVICES. In July 1999, we entered into a reseller and
mall agreement with Frontiervision Media Services, a provider of cable
television programming services, pursuant to which we will design and develop an
Internet-based shopping mall, to be branded with the Frontiervision name, brand,
and image, and will offer our storefront creation and maintenance services to
Frontiervision's subscribers. We will also be responsible for marketing support,
including development of mall content, training of Frontiervision sales people,
and production of advertising spots to promote their services. Frontiervision
will promote this mall with a minimum of 1,000 cablecasts per broadcast month in
each broadcast market where the mall services are offered.
XOOM.COM. In March 1999, we entered into an agreement with XOOM.com (NMS:
XMCM), an electronic commerce Web portal with over 7.8 million members. Under
the terms of the agreement, we are the sole provider of a private labeled
version of XOOM.com's products and services which permit its members to create
and maintain storefronts on the Web through XOOM.com and are the sole provider
of electronic commerce processing services to XOOM.com's electronic commerce
customers. In addition, XOOM.com is reselling our electronic commerce services
and we are developing XOOM.com's Internet-based shopping mall located at
WWW.XOOMMEMBERSTORES.COM.
CB RICHARD ELLIS. In March 1999, we entered into an electronic commerce
services agreement with CB Richard Ellis (NYSE: CBG), one of the world's largest
building management and real estate services companies with over
12,000 properties under management and over $1 billion of revenue during 1998.
Under this agreement, we have been engaged to develop, manage, and service CB
Richard Ellis' Internet-based shopping mall and client extranet. This Web site
is designed to permit CB Richard Ellis personnel to conduct all of their
corporate materials purchasing, including computers and building and maintenance
supplies, and all global facilities management by means of the Internet. In
addition, CB Richard Ellis will be able to offer to the tenants in the buildings
they manage volume purchasing services on the Internet for a variety of office
products and supplies.
BUYSELLBID.COM In August 1999, we entered into a distributor mall and
reseller agreement with BuySellBid.com under which we will design and develop
Internet-based shopping malls for BuySellBid.com, which will in turn resell
and/or sublicense these Internet-based shopping mall packages, custom-branded,
to other resellers, or alternatively brand any such Internet-based mall with the
BuySellBid.com name, brand, and image, and offer our storefront creation and
maintenance services to its own subscribers. Under this agreement, we will be
responsible for marketing support, including development of mall content, and
training of BuySellBid.com sales people.
B2BSTORES.COM INC. In July 1999, we entered into an electronic commerce
services agreement with B2BStores.com Inc., a catalogue aggregator and
procurement company, under which we will develop, manage, and service an
internet commerce site for B2BStores.com which will use the internet commerce
site to offer and sell goods and services to businesses.
RELIANT INNOVATIONS. In June 1999, we entered into an electronic commerce
services agreement with Reliant Innovations, under which we will develop an
electronic commerce site that will enable Reliant Innovations to sell computer
products to clients who are members of specific associations with which Reliant
Innovations has formed a partnership. We expect to complete implementation of
this agreement by November 30, 1999.
BERGEN BRUNSWIG DRUG COMPANY. In October 1999, we entered into an internet
services agreement, with Bergen Brunswig Drug Company, a leading supplier of
pharmaceuticals, medical-surgical supplies
5
<PAGE>
and specialty healthcare products, under which we will design, develop, manage,
and service an Internet-based shopping mall to be branded with the Bergen
Brunswig name, brand, and image and which will contain on-line storefronts for
affiliated local pharmacies. We will also be responsible for training of Bergen
Brunswig personnel.
OTHER RESELLERS. We have also recently entered into reseller agreements,
under which the reseller offers our services to their customers, with FedPage (
www.fedpage.com), a division of Federal Business Council, Inc., the industry
leader in the production of on site federal technology shows, Ayrix
Technologies, OKC Webshopper, Country Wide Net, Hill Country Network, Encom
Industries, Epicycle Business Solutions, Integrated Systems Solutions, Found.com
Inc., Card Service International, and O.T.I. Cable Advertising.
OUR HISTORY AND STRUCTURE
We were incorporated under the laws of the State of Nevada on April 13, 1995
under the name Video Calling Card, Inc. and on June 2, 1998 acquired all of the
outstanding capital stock of Netgateway, a Nevada corporation (formerly,
eClassroom.com) in exchange for 5,900,000 shares of our common stock.
Simultaneously with this acquisition, we acquired the assets of Infobahn, LLC
d/b/a Digital Genesis, an electronic commerce applications developer, in
exchange for 400,000 shares of our common stock. As of January 15, 1999, through
our subsidiary StoresOnline.com, Ltd., an Alberta, Canada corporation, we
acquired Spartan Multimedia, Inc., an Internet storefront developer and
storefront service provider, in exchange for 371,429 shares of Class B common
stock of StoresOnline.com, which shares are exchangeable for an aggregate of
371,429 shares of our common stock. We were reincorporated under the laws of the
State of Delaware prior to the date of this prospectus. Our executive offices
are located at 300 Oceangate, 5th Floor, Long Beach, California 90802 and our
telephone number is (562) 308-0010. Our website is located at
www.netgateway.net. Information contained on our website is not part of this
prospectus.
------------------------
UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO
- THE REPRESENTATIVE'S WARRANTS OR THEIR EXERCISE,
- THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR ITS EXERCISE,
- UP TO 8,000,000 SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UPON THE
EXERCISE OF OPTIONS WHICH MAY BE GRANTED PURSUANT TO OUR EXISTING STOCK
OPTION PLANS, OF WHICH, OPTIONS EXERCISABLE FOR AN AGGREGATE OF 1,872,284
SHARES OF COMMON STOCK ARE OUTSTANDING ON THE DATE OF THIS PROSPECTUS, AND
- UP TO AN AGGREGATE OF 1,672,154 SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF OUTSTANDING WARRANTS OR UPON THE CONVERSION OF CONVERTIBLE
SECURITIES OR UPON THE EXCHANGE OF EXCHANGEABLE SECURITIES.
UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS REFLECTS
- ANY STOCK SPLITS TO DATE,
- OUR RECEIPT OF $522,500 OF NET PROCEEDS IN OCTOBER 1999 FROM OUR MAY
THROUGH SEPTEMBER 1999 PRIVATE PLACEMENT OF SECURITIES,
- THE ISSUANCE OF 270 SHARES OF COMMON STOCK IN NOVEMBER 1999 UPON THE
EXERCISE OF OUTSTANDING WARRANTS FOR $270,
- THE ISSUANCE OF 8,000 SHARES OF COMMON STOCK IN OCTOBER 1999 UPON THE
CONVERSION OF $20,000 OF CONVERTIBLE DEBENTURES,
6
<PAGE>
- THE ISSUANCE OF 962,444 SHARES OF COMMON STOCK UPON THE EXERCISE OF
OUTSTANDING WARRANTS ON A CASHLESS BASIS DURING OCTOBER 1999; AND
- THE ISSUANCE TO THREE OF OUR EXECUTIVE OFFICERS OF AN AGGREGATE OF
1,200,000 SHARES IN OCTOBER 1999 OF COMMON STOCK WHICH MAY BE FORFEITED BY
THESE INDIVIDUALS IF THEY SHOULD END THEIR EMPLOYMENT WITH US PRIOR TO
VESTING IN EXCHANGE FOR OUTSTANDING STOCK OPTIONS UNDER OUR EXISTING STOCK
OPTION PLANS.
PLEASE SEE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--LIQUIDITY AND CAPITAL RESOURCES" AND
"MANAGEMENT--EXECUTIVE COMPENSATION."
THE OFFERING
<TABLE>
<S> <C>
Common stock offered............ 3,000,000 shares
Common stock outstanding
immediately prior to this
offering...................... 12,495,768 shares(1)
Common stock outstanding
immediately following this
offering...................... 15,495,768 shares(1)
Use of proceeds................. We intend to use the net proceeds of this offering to
repay indebtedness, including $6,483,500 principal amount
of indebtedness which we incurred in our May through
September 1999 private placement, to increase marketing
and research and development, to acquire additional
capital equipment, and for general corporate and working
capital purposes, including possible acquisitions of, and
investment in, businesses and technologies. See "Use of
Proceeds."
Proposed Nasdaq National Market
trading symbol................ NGWY
OTC Bulletin Board trading
symbol........................ NGWY
Risk factors.................... An investment in our common stock is highly speculative
and involves a high degree of risk. You should read the
"Risk Factors" section beginning on page 10.
</TABLE>
- ------------------------
(1) Does not reflect the representative's warrants or their exercise, the
underwriters' over-allotment option or its exercise, up to 8,000,000 shares
of common stock reserved for issuance upon the exercise of options which may
be granted pursuant to our existing stock option plans, of which options
exercisable for an aggregate of 1,872,284 shares of common stock are
outstanding on the date of this prospectus, up to an aggregate of 1,183,725
shares of common stock issuable upon the exercise of outstanding warrants,
and up to 443,429 shares of common stock issuable upon the conversion of
convertible securities or upon the exchange of exchangeable securities.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following selected statements of operations data for the period from our
inception on March 4, 1998 through June 30, 1998 and the year ended June 30,
1999 and the selected balance sheet data as of June 30, 1999 are derived from
our consolidated financial statements and related notes included elsewhere in
this prospectus audited by KPMG LLP, our independent auditors. The selected
financial data as of and for the three months ended September 30, 1999 is
unaudited. The selected statement of operations data for the period from our
inception on March 4, 1998 through June 30, 1998 includes the results of
operations of Infobahn Technologies, LLC (dba Digital Genesis) from June 2,
1998, its date of acquisition, and the pro forma selected statement of
operations data for such period includes the operations of Digital Genesis and
Spartan Multimedia as if they were acquired by us on March 4, 1998. The selected
statement of operations data for the year ended June 30, 1999 includes the
results of operations of Spartan Multimedia from January 15, 1999, its date of
acquisition, and the pro forma selected statement of operations data for such
period includes the operations of Spartan Multimedia as if it was acquired by us
on July 1, 1998. The pre-offering pro forma balance sheet data as of
September 30, 1999 is adjusted to reflect:
- our receipt of $522,500 of the net proceeds from our May through September
1999 private placement of securities received by us after September 30,
1999;
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999; and
- the issuance to three of our executives of an aggregate of 1,200,000
shares of common stock in October 1999 which may be forfeited by those
individuals if they should end their employment with us prior to vesting
in exchange for outstanding stock options under our stock option plans.
The post-offering pro forma, as adjusted balance sheet data as of September 30,
1999 is adjusted to reflect:
- our receipt of $522,500 of the net proceeds from our May through September
1999 private placement of securities received by us after September 30,
1999;
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999;
- the issuance to three of our executives of an aggregate of 1,200,000
shares of common stock in October 1999 which may be forfeited by those
individuals if they should end their employment with us prior to vesting
in exchange for outstanding stock options under our stock option plans;
and
- the receipt of estimated net proceeds of approximately $20.3 million from
the sale of our common stock at the assumed public offering price of
$8.00 per share and the initial application of these proceeds as described
under "Use of Proceeds."
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes appearing elsewhere
in this prospectus.
8
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 4, 1998
(INCEPTION) THROUGH THREE MONTHS ENDED
SEPTEMBER 30, 1998 YEAR ENDED JUNE 30, 1999 SEPTEMBER 30,
------------------------- ------------------------------ -------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA 1998 1999
----------- ----------- ------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 2,800 $ 124,325 $ 143,426 $ 146,867 $ 22,470 $ 212,733
Total operating expenses...... 4,555,459 4,736,557 11,303,848 11,518,898 1,778,173 3,014,976
Interest expense, net......... 19,277 19,277 925,097 925,097 2,408 1,029,812
Loss before extraordinary
item........................ (4,571,936) (4,631,509) (12,140,248)(1) (12,351,857)(1) (1,812,840) (3,832,055)
Loss before extraordinary item
per weighted average common
share outstanding (basic and
diluted).................... (0.84) (0.81) (1.36)(1) (1.39)(1) (.22) (0.38)
Weighted average common shares
outstanding (basic and
diluted).................... 5,416,242 5,721,327 8,912,041 8,912,041 8,280,801 10,017,740
<CAPTION>
CUMULATIVE PERIOD
FROM MARCH 4, 1998
(INCEPTION) THROUGH
SEPTEMBER 30,
1999(2)
-------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 358,959
Total operating expenses...... 18,874,283
Interest expense, net......... 1,974,186
Loss before extraordinary
item........................ (20,544,239)(1)
Loss before extraordinary item
per weighted average common
share outstanding (basic and
diluted).................... (2.26)(1)
Weighted average common shares
outstanding (basic and
diluted).................... 8,372,298
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
JUNE 30, PRO FORMA,
------------------------- AS
1998 1999 ACTUAL PRO FORMA ADJUSTED
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................... $ 371,467 $ 1,379,326 $2,441,451 $2,962,899 $15,871,445
Total assets..................................... 871,552 3,458,350 4,617,114 5,138,562 18,047,108
Working capital (deficit)........................ (1,959,776) (1,545,420) (3,042,769) (2,658,821) 13,828,761
Shareholders' equity (deficit)................... (1,827,583) 545,291 (867,106) (483,158) 16,004,424
</TABLE>
- ------------------------
(1) Before extraordinary gain of $1,653,232 relating to extinguishment of
indebtedness of $0.19, $0.19, and $0.20 per weighted-average common shares
outstanding during the year ended June 30, 1999 actual, pro forma, and the
cumulative period from March 4, 1998 (inception) through September 30,
1999, respectively.
(2) The cumulative period statement of operations data is included in
accordance with applicable generally accepted accounting principles since
we are a development stage company.
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH
DEGREE OF RISK, AND SHOULD BE MADE ONLY BY INVESTORS WHO CAN AFFORD A COMPLETE
LOSS. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH
THE OTHER INFORMATION IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND
THE RELATED NOTES, BEFORE YOU DECIDE TO BUY OUR COMMON STOCK.
RISKS SPECIFIC TO NETGATEWAY
WE HAVE HAD A DEFICIT IN STOCKHOLDERS' EQUITY; WE ANTICIPATE FUTURE LOSSES
We have incurred substantial losses since our inception and we anticipate
continuing to incur substantial losses for the foreseeable future. As of
June 30, 1999 and September 30, 1999, we had a working capital (deficit) of
$(1,545,420) and $(3,042,769), respectively, and shareholders' equity (deficit)
of $545,291 and $(867,106) at June 30, 1999 and September 30, 1999,
respectively. See our financial statements and the related notes. We generated
revenues of $143,426 for the year ended June 30, 1999 and $212,733 during the
three months ended September 30, 1999. For the year ended June 30, 1999 and the
three months ended September 30, 1999, we incurred net losses of $(10,487,016)
and $(3,832,055), respectively. We may never achieve profitability. In addition,
during the year ended June 30, 1999 and the three months ended September 30,
1999, we recorded negative cash flows from operations of $(4,552,912) and
$(2,156,738), respectively. To succeed, we must leverage our existing
relationships and develop new relationships to substantially increase our
revenue derived from more comprehensive electronic commerce services. We have
expended and will continue to expend significant resources to build our internal
systems, to grow our infrastructure, to add additional participating companies
and employees, and to establish access to the ICC platform for participating
companies, directly and as resellers. These development expenses must be
incurred well in advance of the recognition of revenue. Under generally accepted
accounting principles during our fiscal year ended June 30, 1999 and the three
months ended September 30, 1999, we recognized revenue only upon completion of a
customer transaction through the ICC. This required the realization of expenses
in advance of associated related revenue. Our performance will depend in large
part upon our ability to estimate accurately these resource requirements and the
revenues generated by customers engaging in the transactions through the ICC. To
date, the volume of our transactions has been limited, and, accordingly, the
revenue recognized has been minimal. We intend to continue to invest heavily in
acquisitions, infrastructure, development, and marketing. As result, we may not
be able to achieve or sustain profitability.
OUR AUDITORS HAVE QUALIFIED THEIR REPORT ON OUR FINANCIAL STATEMENTS WITH
RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN
The report of KPMG LLP, our independent auditors, with respect to our
financial statements and the related notes, indicate that, at the date of their
report, we were in the development stage, had generated minimal revenues since
inception, and were continuing to incur losses. Accordingly, KPMG LLP qualified
their report to indicate that these matters raise substantial doubt, at such
date, about our ability to continue as a going concern. Our financial statements
do not include any adjustments that might result from this uncertainty. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes.
BECAUSE WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, THERE IS
LIMITED INFORMATION UPON WHICH INVESTORS CAN EVALUATE OUR BUSINESS
We began our operations in March 1998 and are currently a development stage
company. Consequently, we have a very limited operating history upon which you
may base an evaluation of our business and determine our prospects for achieving
our intended business objectives. Although we have
10
<PAGE>
recently entered into agreements with electronic commerce resellers providing us
with access to more than eight million potential clients, we are currently
providing electronic commerce transaction processing services to only
approximately 1,600 clients. We are prone to all of the risks inherent to the
establishment of any new business venture, including unforeseen changes in our
business plan. For example, in June 1998, we changed our business plan to the
development of technology to enable businesses and other organizations to engage
in electronic commerce, whereas our prior efforts focused on the licensing and
distribution of software support materials for the governmental and educational
markets. You should consider the likelihood of our future success to be highly
speculative in light of our limited operating history, as well as the limited
resources, problems, expenses, risks, and complications frequently encountered
by similarly situated companies in the early stages of development, particularly
companies in new and rapidly evolving markets, such as electronic commerce. To
address these risks, we must, among other things,
- maintain and increase our client base,
- implement and successfully execute our business and marketing strategy,
- continue to develop and upgrade our technology and transaction processing
systems,
- continually update and improve our service offerings and features,
- provide superior customer service,
- respond to industry and competitive developments, and
- attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do
so, our business prospects, financial condition, and results of operations would
be materially and adversely affected.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY AFFECT OUR STOCK PRICE
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we believe that our operating results may fluctuate
materially, as a result of which quarter-to-quarter comparisons of our results
of operations may not be meaningful. If in some future quarter, whether as a
result of such a fluctuation or otherwise, our results of operations fall below
the expectations of securities analysts and investors, the trading price of our
common stock would likely be materially and adversely affected. You should not
rely on our results of any interim period as an indication of our future
performance. Additionally, our quarterly results of operations may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside our control. Factors that may cause our quarterly results to
fluctuate include, among others:
- our ability to retain existing clients and electronic commerce resellers,
to attract new clients and electronic commerce resellers at a steady rate,
and to maintain client satisfaction;
- our ability to motivate our existing clients, and the ability of certain
of our clients to motivate their customers, to begin to conduct certain
portions of their business on the Internet;
- the ability of our resellers to resell our StoresOnline services;
- the announcement or introduction of new services and products by us and
our competitors;
- price competition or higher prices in the industry;
- pricing of hardware and software required for the transaction of
electronic commerce;
- the level of use of the Internet and online services and the rate of
market acceptance of the Internet and other online services for
transacting commerce;
11
<PAGE>
- our ability to upgrade and develop our systems and infrastructure in a
timely and effective manner;
- our ability to attract, train, and retain skilled management, strategic,
technical, and creative professionals;
- technical difficulties, system downtime, or Internet brownouts;
- the amount and timing of operating costs and capital expenditures relating
to the expansion of our business, operations, and infrastructure;
- unanticipated technical, legal, and regulatory difficulties with respect
to use of the Internet; and
- general economic conditions and economic conditions specific to Internet
technology usage and electronic commerce.
OUR MARKETING STRATEGY HAS NOT BEEN TESTED AND MAY NOT RESULT IN SUCCESS
To date, we have conducted limited marketing efforts directly and have
relied substantially upon the marketing efforts of the electronic commerce
resellers with which we have contracts or strategic relationships. All of our
marketing efforts, including our marketing through these resellers, have been
largely untested in the marketplace, and may not result in sales of our products
and services. To penetrate our market, we will have to exert significant efforts
to create awareness of, and demand for, our products and services. With respect
to our marketing efforts conducted directly, we intend to begin to do the
following after this offering:
- advertise on the Internet;
- advertise on television in selected markets;
- direct mail;
- conduct targeted e-mail campaigns;
- advertise in technology, financial, and business publications having wide
readership; and
- expand our sales staff.
With respect to our marketing efforts conducted through resellers, we intend to
do the following after this offering:
- create a group within our sales staff trained to assist resellers in
marketing our products and services to their customers, members,
employees, and relationships;
- create branded promotional brochures and other marketing materials to
inform resellers and their constituencies as to our products and services,
and
- advertise in trade publications in strategic industries.
Our failure to further develop our marketing capabilities and successfully
market our products and services could have a material adverse effect on our
business, prospects, financial condition, and results of operations. See "Use of
Proceeds," "Business--Business Strategy," "Business--Clients and Strategic
Relationships," and "Business--Sales and Marketing."
IF WE ARE UNABLE TO UPGRADE OUR INFRASTRUCTURE, WE MAY BE UNABLE TO PROCESS
AN INCREASED VOLUME OF TRANSACTIONS
A key element of our strategy is to provide on a cost-effective basis the
means by which our clients can generate a high volume of electronic commerce
transactions through the use of our hardware and software infrastructure. If the
volume of transactions through our infrastructure substantially increases,
12
<PAGE>
we will have to expand and further upgrade our technology, transaction
processing systems, and hardware and software infrastructure to accommodate
these increases or our systems may suffer from
- unanticipated system disruptions,
- slower response times,
- degradation in levels of customer service,
- impaired quality and speed of transaction processing, and
- delays in reporting accurate financial information.
We may be unable to effectively upgrade and expand our hardware and software
infrastructure or to integrate smoothly any newly developed or purchased
software with our existing systems, which could have a material adverse effect
on our business, prospects, financial condition, and results of operations. See
"Business--Business Strategy."
WE RELY ON INTERNALLY DEVELOPED SYSTEMS WHICH ARE INEFFICIENT, WHICH MAY PUT
US AT A COMPETITIVE DISADVANTAGE
We use an internally developed system for a portion of our transaction
processing software, as well as the software required to interconnect our
clients' systems with our own. As we developed these systems primarily to
support the rapid growth of transaction submission volume and customer service
and less on traditional accounting, control, and reporting, these systems are
inefficient and require a significant amount of manual effort to prepare
information for financial and accounting reporting. Such manual effort is
time-consuming and costly and may place us at a competitive disadvantage when
compared to competitors with more efficient systems. We intend to upgrade and
expand our transaction processing systems and to integrate newly-developed and
purchased software with our existing systems in order to improve the efficiency
of our reporting methods and support increased transaction volume, although we
are unable to predict whether these upgrades will improve our competitive
position when compared to our competitors.
IF WE CHANGE OUR REVENUE RECOGNITION PRINCIPLES, OUR RESULTS OF OPERATIONS
FOR PRIOR PERIODS MAY CHANGE
We currently recognize revenues using the completed contract method. We
intend to consider using the percentage of completion method to recognize
revenues when we meet the criteria necessary to use that method. Under the
completed contract method, revenue is recognized upon completion or substantial
completion of the contract. Under the percentage of completion method, revenue
is recognized on a pro rata basis as work progresses on the contract, and
percentage of completion is determined on the basis of cost incurred to total
estimated costs. Under the percentage of completion method, in the period in
which one determines that a loss will result from a performance of a contract,
the entire amount of the estimated loss is recognized. In the event that we
should make this change, we will be required to restate comparative prior
periods. We cannot guarantee that any amendments to our financial statements as
a result of this change will not be material.
BECAUSE OUR MANAGEMENT WILL CONTINUE TO OWN A SUBSTANTIAL PORTION OF OUR
COMMON STOCK FOLLOWING THIS OFFERING, INVESTORS MAY HAVE DIFFICULTY
OBTAINING THE NECESSARY STOCKHOLDER VOTE FOR CORPORATE ACTIONS CONTRARY TO
THE WISHES OF MANAGEMENT
Upon the completion of this offering, our current directors and executive
officers will together beneficially own approximately 4,769,101 shares, or 30.7%
of the outstanding shares of common stock,
13
<PAGE>
or approximately 29.1% of the outstanding shares of our common stock if the
underwriters' over-allotment option is exercised in full. As a result of their
stock ownership:
- our current officers and directors will have the ability to substantially
influence the outcome of all matters on which stockholders are entitled to
vote, including the elections of our directors and the approval of
significant corporate transactions; and
- investors in this offering may have difficulty obtaining the necessary
stockholder vote required for corporate actions contrary to the wishes of
management.
See "Principal Stockholders."
INVESTORS WILL NOT HAVE THE OPPORTUNITY TO REVIEW THE SPECIFIC ALLOCATION OF
THE NET PROCEEDS OF THIS OFFERING IN DECIDING WHETHER TO PURCHASE OUR
COMMON STOCK
Management has allocated approximately $10.2 million, or 50.2%, of the
estimated net proceeds of this offering for marketing, research and development,
and general corporate and working capital purposes. Accordingly, our management
will have broad discretion in how to use the net proceeds of this offering, and
investors will not have the opportunity to review the specific allocation of our
net proceeds in deciding whether to purchase our common stock. The failure of
management to apply these proceeds effectively could have a material adverse
affect on our business, prospects, financial condition, and results of
operation. See "Use of Proceeds."
OUR MANAGEMENT TEAM IS RELATIVELY NEW; MANY OF OUR EMPLOYEES HAVE RECENTLY
JOINED US AND MUST BE INTEGRATED INTO OUR OPERATIONS
From our inception on March 4, 1998 to June 30, 1998, during the year ended
June 30, 1999, and during the three months ended September 30, 1999, we expanded
from seven to 16 employees, from 16 to 68 employees, and from 68 to 101
employees, respectively. Some of our officers have no prior senior management
experience in public companies and have only recently joined us. Our new
employees include a number of key managerial, technical, financial, marketing,
and operations personnel who have not yet been fully integrated into our
operations, and we expect to add additional key personnel in the near future.
Our failure to fully integrate our new employees into our operations could have
a material adverse effect on our business, prospects, financial condition, and
results of operations. See "Business--Employees" and "Management."
WE HAVE LIMITED HUMAN RESOURCES; WE NEED TO ATTRACT AND RETAIN HIGHLY
SKILLED PERSONNEL; AND WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH
WITH OUR LIMITED RESOURCES
We expect that the expansion of our business will place a significant strain
on our limited managerial, operational, and financial resources. We will be
required to expand our operational and financial systems significantly and to
expand, train, and manage our work force in order to manage the expansion of our
operations. Our future success will depend in large part on our ability to
attract, train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than we have. We may not be successful in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. If we are not successful in attracting and retaining these
personnel, our business, prospects, financial condition, and results of
operations will be materially adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
"Business--Business Strategy," and "Business--Employees."
14
<PAGE>
WE DEPEND UPON OUR SENIOR MANAGEMENT AND THEIR LOSS OR UNAVAILABILITY COULD
PUT US AT A COMPETITIVE DISADVANTAGE
Our success depends largely on the skills of certain key management and
technical personnel. The loss or unavailability of any of these individuals for
any significant period of time could have a material adverse effect on our
business, prospects, financial condition, and results of operations. We have
obtained, own, and are the sole beneficiary of, key-person life insurance in the
amount of $1,000,000 on the life of Keith D. Freadhoff, our Chairman of the
Board of Directors. We cannot guarantee that we will be able to replace this key
individual in the event his services become unavailable. See
"Management--Employment Agreements."
AS OUR CHAIRMAN OF THE BOARD OF DIRECTORS HAS PLEDGED HIS STOCK, WE MAY
EXPERIENCE A CHANGE OF CONTROL
Keith D. Freadhoff, our Chairman of the Board of Directors, has pledged
825,000 shares of our common stock held by him as security for his personal
financial obligations, which, at the date of this prospectus, are approximately
$1,100,000. These financial obligations are due on demand. If Mr. Freadhoff
defaults on these obligations, Mr. Freadhoff may lose ownership of these shares,
including the right to vote these shares, which could result in a change of
control of Netgateway and would have a material adverse effect on our business,
prospects, financial condition, and results of operations. See "Principal
Stockholders."
WE MAY BE REQUIRED TO USE FUNDS WHICH WE WOULD OTHERWISE USE FOR GROWTH TO
RESCIND OUR MAY THROUGH SEPTEMBER 1999 PRIVATE PLACEMENT
During May through September 1999, we completed a private placement of
$6,483,500 principal amount of notes and 660,850 shares of common stock for
aggregate gross proceeds of approximately $6,483,500, of which $522,500 was
received in October 1999. Although we intend to use a portion of the net
proceeds of this offering to repay those notes, pursuant to the Securities Act,
the rules and regulations under the Securities Act, and the interpretations of
the Commission, the investors in this private placement may have the right to
require us to repurchase the securities which they purchased in this private
placement for a price equal to the amount they paid for these securities when
they were purchased from us. Investors would be required to bring any action for
rescission within one year from the date of discovery of the omission or
misstatement or the date that it should have been discovered, but no more than
three years from the sale. If we are required to rescind the private placement
in its entirety, we would be required to refund all of the gross proceeds of
this private offering to the investors. These proceeds would be paid in part
with the net proceeds of this offering. Even following the repayment of these
notes, based on this Act, rules and regulations, and interpretations, the
investors in this private offering may have the right to require us to
repurchase the shares of common stock which they received in this private
placement if they can successfully argue that these shares were issued in lieu
of a higher interest rate on these notes. We believe that the likelihood of an
investor commencing an action for rescission on this basis will increase if the
trading price of the common stock drops below the offering price in this
offering.
In addition, although we have no current plans to conduct an additional
private offering of securities prior to the closing of this offering, in the
event that this offering is materially delayed, we may be required to conduct an
additional private offering in order to satisfy our working capital
requirements. In this event, the investors in this private placement may also
have the right to require us to repurchase the securities which they purchased
in this private placement as described above. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
15
<PAGE>
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND WE MAY BE
LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
Our ability to compete effectively will depend on our ability to maintain
the proprietary nature of our services and technologies, including our
proprietary software and the proprietary software of others with which we have
entered into software licensing agreements. Although we have one patent
application pending we hold no patents and rely on a combination of trade
secrets and copyright laws, nondisclosure, and other contractual agreements and
technical measures to protect our rights in our technological know-how and
proprietary services. We depend upon confidentiality agreements with our
officers, directors, employees, consultants, and subcontractors to maintain the
proprietary nature of our technology. These measures may not afford us
sufficient or complete protection, and others may independently develop know-how
and services similar to ours, otherwise avoid our confidentiality agreements, or
produce patents and copyrights that would materially and adversely affect our
business, prospects, financial condition, and results of operations. We believe
that our services are not subject to any infringement actions based upon the
patents or copyrights of any third parties; however, our know-how and technology
may in the future be found to infringe upon the rights of others. Others may
assert infringement claims against us, and if we should be found to infringe
upon their patents or copyrights, or otherwise impermissibly utilize their
intellectual property, our ability to continue to use our technology could be
materially restricted or prohibited. If this event occurs, we may be required to
obtain licenses from the holders of this intellectual property, enter into
royalty agreements, or redesign our products and services so as not to utilize
this intellectual property, each of which may prove to be uneconomical or
otherwise impossible. Licenses or royalty agreements required in order for us to
use this technology may not be available on terms acceptable to us, or at all.
These claims could result in litigation, which could materially adversely affect
our business, prospects, financial condition, and results of operations. See
"Business--Intellectual Property."
WE MAY BE HELD LIABLE FOR ONLINE CONTENT PROVIDED BY THIRD PARTIES
We may face potential liability for defamation, negligence, copyright,
patent, or trademark infringement and other claims based on the nature and
content of the materials that appear on storefronts and Web pages that utilize
our services. Claims of this type have been brought, and sometimes successfully
pursued, against online services. Although we carry general liability insurance,
our insurance may not cover all claims or may not be adequate to indemnify us
for any liability that may be imposed. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of our insurance
coverage, could have a material adverse effect on our reputation, business,
prospects, financial condition, and results of operations.
WE INTEND TO USE FUNDS WHICH WE WOULD OTHERWISE USE FOR GROWTH TO REPAY
INDEBTEDNESS TO INVESTORS IN OUR MAY THROUGH SEPTEMBER 1999 PRIVATE
PLACEMENT, WHICH COULD LIMIT OUR ABILITY TO EXPAND
We intend to use approximately $6.8 million, or 33.5%, of the net proceeds
of this offering to repay the promissory notes issued in our private placement
which closed from May through September 1999 and $150,000 principal amount of
notes issued to settle a financial obligation in May 1999. As a result, we will
be unable to utilize these funds for growth, which could limit our ability to
implement our current plans for expansion. See "Use of Proceeds" "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING
We believe that the net proceeds from this offering, together with
anticipated revenues from operations, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 18 months. Our belief is based on our operating plan which in turn is
based on assumptions, which may prove to be incorrect. As a result, our
financial resources may not be
16
<PAGE>
sufficient to satisfy our capital requirements for this period. In addition, we
may need to raise significant additional funds sooner in order to support our
growth, develop new or enhanced services and products, respond to competitive
pressures, acquire or invest in complementary or competitive businesses or
technologies, or take advantage of unanticipated opportunities. If our financial
resources are insufficient and, in any case, after this 18-month period, we will
require additional financing in order to meet our plans for expansion. We cannot
be sure that this additional financing, if needed, will be available on
acceptable terms or at all. Furthermore, any additional debt financing, if
available, may involve restrictive covenants, which may limit our operating
flexibility with respect to business matters. If additional funds are raised
through the issuance of equity securities, the percentage ownership of our
existing stockholders will be reduced, our stockholders may experience
additional dilution in net book value per share, and such equity securities may
have rights, preferences, or privileges senior to those of our existing
stockholders. If adequate funds are not available on acceptable terms, we may be
unable to develop or enhance our services and products, take advantage of future
opportunities, repay debt obligations as they become due, or respond to
competitive pressures, any of which would have a material adverse effect on our
business, prospects, financial condition, and results of operations. See "Use of
Proceeds," "Dilution," and "Business--Business Strategy."
WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR
MATERIAL THIRD PARTY SYSTEMS ARE NOT YEAR 2000 COMPLIANT
Many currently installed computer systems and software products are coded to
accept only two-digit entries to identify a year in the date code field.
Consequently, on January 1, 2000, many of these systems could fail or
malfunction because they may not be able to distinguish between 20th century
dates and 21st century dates. Accordingly, in the coming year, many companies,
including our customers, potential customers, vendors, and strategic partners,
may need to upgrade their systems to comply with applicable "Year 2000"
requirements.
Because we and our clients are dependent, to a very substantial degree, upon
the proper functioning of our and their computer systems, a failure of our or
their systems to correctly recognize dates beyond December 31, 1999 could
materially disrupt our operations, which could materially adversely affect our
business, prospects, financial condition, and results of operations.
Additionally, our failure to provide Year 2000 compliant products and services
to our clients could result in financial loss, harm to our reputation, and legal
liability. Likewise, the failure of the computer systems and products of the
third parties with which we transact business to be Year 2000 compliant could
materially disrupt their and our operations, which could materially adversely
affect our business, prospects, financial condition, and results of operations.
We have already completed an internal review, and we are conducting a formal
assessment to determine the Year 2000 readiness of our proprietary software. We
are also in the process of contacting third party vendors, licensors of
hardware, software, and services and clients regarding their Year 2000
readiness. Following our assessment and after contacting these third parties, we
will be able to make an evaluation of our state of readiness, risks, and costs,
and determine whether a contingency plan is necessary. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
BECAUSE WE WILL NOT PAY CASH DIVIDENDS, INVESTORS MAY HAVE TO SELL THEIR
SHARES IN ORDER TO REALIZE THEIR INVESTMENT
We have not paid any cash dividends on our common stock and do not intend to
pay cash dividends in the foreseeable future. We intend to retain future
earnings, if any, for reinvestment in the development and expansion of our
business. Any credit agreements into which we may enter with institutional
lenders may restrict our ability to pay dividends. Whether we pay cash dividends
in the future will be at the discretion of our board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, and any other factors that the board of directors
17
<PAGE>
decides is relevant. As a result, investors may have to sell their shares of
common stock to realize their investment. See "Dividend Policy" and "Description
of Securities--Common Stock."
BECAUSE WE DEPEND UPON A SINGLE SITE FOR OUR COMPUTER AND COMMUNICATIONS
SYSTEMS, WE ARE MORE VULNERABLE TO THE EFFECTS OF NATURAL DISASTERS,
COMPUTER VIRUSES, AND SIMILAR DISRUPTIONS
Our ability to successfully process transactions and provide high-quality
customer service largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and software systems. Our proprietary
and licensed software resides solely on our servers, all of which, as well as
all of our communications hardware, are located in a monitored server facility
in Irvine, California. Our systems and operations are in a secured facility with
hospital-grade electrical power, redundant telecommunications connections to the
Internet backbone, uninterruptible power supplies, and generator back-up power
facilities. In addition, we maintain redundant systems for backup and disaster
recovery. Despite these safeguards, we remain vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake, and similar events. In addition, we do not, and may not
in the future, carry sufficient business interruption insurance to compensate us
for losses that may occur. Despite our implementation of Internet security
measures, our servers are vulnerable to computer viruses, physical or electronic
break-ins, and similar disruptions, which could lead to interruptions, delays,
loss of data, or the inability to process client transactions. The occurrence of
any of these events could have a material adverse effect on our business,
prospects, financial condition, and results of operations. See
"Business--Facilities."
USERS MAY CONFUSE OTHER COMPANIES' DOMAIN NAMES WITH OUR OWN
We have registered with the InterNIC registration service the Internet
domain names: netgateway.net, netgateway.org, federalbuyersmall.com,
storesonlinemall.com, solint.net, Clevelandstores.com, Clevelande-mall.com,
Clevelandemall.com, Cleveland-emall.com, E-Cart.com, cablecommerce.net,
cablenetmall.com, citdmall.com, frontiervisionmall.com, mikesofamerica.com,
northshorestores.com, otimall.com, showcasestores.com, cconnections.com,
entchat.com, golfmate.com, openemail.net, opentrade.net, eknowledge.net ,
dgenesis.com, communicationsgroup.com, quickgrill.com, flashgrill.com,
afisteaks.com , and storesonline.com. We have registered with Internic.com the
Internet domain names: millenniumemall.com and millenniumemall.net. However,
there are other substantially similar domain names which are registered by
companies which may compete with us, which may cause potential users and
advertisers to confuse our domain name with other similar domain names. In
addition, new domains may be added in the future, allowing combinations and
similar domain names that may be confusingly similar to our own. If that
confusion occurs,
- we may inadvertently lose business to a competitor,
- we may have to adjust our advertising rates and service fees accordingly,
or
- some users of our services may have negative experiences with other
companies on their Web sites that those users erroneously associate with
us. See "Business--Intellectual Property."
SOME PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS MAY DETER
TAKEOVER ATTEMPTS, WHICH MAY LIMIT THE OPPORTUNITY OF OUR STOCKHOLDERS TO
SELL THEIR SHARES AT A PREMIUM TO THE THEN MARKET PRICE
Some of the provisions of our certificate of incorporation and our by-laws
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders by providing them with the opportunity
to sell their shares at a premium to the then market price. Our by-laws contain
provisions which regulate the introduction of business at annual meetings of our
stockholders by other than the board of directors. These provisions may have the
effect of rendering more difficult, delaying, discouraging, preventing, or
rendering more costly an acquisition of the
18
<PAGE>
Company or a change in control of the Company. In addition, our certificate of
incorporation authorizes the board of directors to issue up to 4,000,000 shares
of preferred stock, which may be issued in one or more series, the terms of
which may be determined at the time of issuance by the board of directors,
without further action by stockholders, and may include voting rights, including
the right to vote as a series on particular matters, preferences as to dividends
and liquidation, conversion, and redemption rights, and sinking fund provisions.
No shares of preferred stock are currently outstanding, and we have no present
plans for the issuance of any preferred stock. However, the issuance of any
preferred stock could materially adversely affect the rights of holders of our
common stock, and, therefore, could reduce its value. In addition, specific
rights granted to future holders of preferred stock could be used to restrict
the Company's ability to merge with, or sell its assets to, a third party. The
ability of the board of directors to issue preferred stock could have the effect
of rendering more difficult, delaying, discouraging, preventing, or rendering
more costly an acquisition of us or a change in our control thereby preserving
our control by the current stockholders. See "Description of Securities."
RISKS SPECIFIC TO OUR INDUSTRY
INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS
The processing of electronic commerce transactions by means of our hardware
and software infrastructure involves the transmission and analysis of
confidential and proprietary information of the consumer, the merchant, or both,
as well as our own confidential and proprietary information. The compromise of
our security or misappropriation of proprietary information could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. We rely on encryption and authentication technology
licensed from other companies to provide the security and authentication
necessary to effect secure Internet transmission of confidential information,
such as credit information and proprietary consumer information. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments may result in a compromise or breach of the technology
used by us to protect client transaction data. Anyone who is able to circumvent
our security measures could misappropriate proprietary information or cause
interruptions in our operations, as well as the operations of the merchant. We
may be required to expend significant capital and other resources to protect
against security breaches or to minimize problems caused by security breaches.
Concerns over the security of the Internet and other electronic transactions and
the privacy of consumers and merchants may also inhibit the growth of the
Internet and other online services generally, especially as a means of
conducting commercial transactions. To the extent that our activities or the
activities of others involve the storage and transmission of proprietary
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our security measures may not
prevent security breaches. Our failure to prevent these security breaches may
have a material adverse effect on our business, prospects, financial condition,
and results of operations.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF ELECTRONIC COMMERCE
CONTINUES TO GROW
Our future revenues and any future profits are substantially dependent upon
the widespread acceptance and use of the Internet and other online services as
an effective medium of commerce by merchants and consumers. If use of the
Internet and other online services does not continue to grow or grows more
slowly than we expect, if the infrastructure for the Internet and other online
services does not effectively support the growth that may occur, or if the
Internet and other online services do not become a viable commercial
marketplace, our business, prospects, financial condition, and results of
operations could be materially adversely affected. Rapid growth in the use of,
and interest in, the Internet, the Web, and online services is a recent
phenomenon, and may not continue on a lasting basis. In addition, customers may
not adopt, and continue to use, the Internet and other online services
19
<PAGE>
as a medium of commerce. Demand and market acceptance for recently introduced
services and products over the Internet are subject to a high level of
uncertainty, and few services and products have generated profits. For us to be
successful, consumers of both retail and business to business services must be
willing to accept and use novel and cost efficient ways of conducting business
and exchanging information.
In addition, the public in general may not accept the Internet and other
online services as a viable commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. To the extent that the Internet and other online retail and
business to business services continue to experience significant growth in the
number of users, their frequency of use, or in their bandwidth requirements, the
infrastructure for the Internet and online services may be unable to support the
demands placed upon them. In addition, the Internet or other online services
could lose their viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Significant issues
concerning the commercial use of the Internet and online services technologies,
including security, reliability, cost, ease of use, and quality of service,
remain unresolved and may inhibit the growth of Internet business solutions that
utilize these technologies. Changes in, or insufficient availability of,
telecommunications services to support the Internet or other online services
also could result in slower response times and adversely affect usage of the
Internet and other online services generally and our product and services in
particular.
WE MAY NOT BE ABLE TO ADAPT AS THE INTERNET, ELECTRONIC COMMERCE, THE
ELECTRONIC COMMERCE SERVICES INDUSTRY, AND CUSTOMER DEMANDS CONTINUE TO
EVOLVE
We may not be able to adapt as the Internet, electronic commerce, the
electronic commerce services market, and consumer demands continue to evolve.
Our failure to respond in a timely manner to changing market conditions or
client requirements would have a material adverse effect on our business,
prospects, financial condition, and results of operations. The Internet, the
electronic commerce, and the electronic commerce services industry are
characterized by:
- rapid technological change;
- changes in user and customer requirements and preferences;
- frequent new product and service introductions embodying new technologies;
and
- the emergence of new industry standards and practices that could render
proprietary technology and hardware and software infrastructure obsolete.
Our success will depend, in part, on our ability to:
- enhance and improve the responsiveness and functionality of our online
transaction processing services;
- license or develop technologies useful in our business on a timely basis,
enhance our existing services, and develop new services and technology
that address the increasingly sophisticated and varied needs of our
prospective or current customers; and
- respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
See "Business--Business Strategy."
20
<PAGE>
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY
While the market for electronic commerce services is relatively new, it is
already highly competitive and characterized by an increasing number of entrants
that have introduced or developed products and services similar to those offered
by us. We believe that competition will intensify and increase in the future.
Our target market is rapidly evolving and is subject to continuous technological
change. As a result, our competitors may be better positioned to address these
developments or may react more favorably to these changes, which could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. We compete on the basis of a number of factors, including
the attractiveness of the electronic commerce services offered, the breadth and
quality of these services, creative design and systems engineering expertise,
pricing, technological innovation, and understanding clients' strategies and
needs. A number of these factors are beyond our control. Existing or future
competitors may develop or offer electronic commerce services that provide
significant technological, creative, performance, price, or other advantages
over the services offered by us.
Our competitors can be divided into several groups:
- large systems integrators;
- Internet service providers and portals;
- large information technology consulting services providers;
- computer hardware and service vendors; and
- strategic consulting firms.
We also may compete with telecommunications companies. Although most of
these types of competitors to date have not offered a full range of Internet
professional services, many are currently offering these services or have
announced their intention to do so. These competitors at any time could elect to
focus additional resources in our target markets, which could materially
adversely affect our business, prospects, financial condition, and results of
operations. Many of our current and potential competitors have longer operating
histories, larger customer bases, longer relationships with clients, and
significantly greater financial, technical, marketing, and public relations
resources than we do. Competitors that have established relationships with large
companies, but have limited expertise in providing Internet solutions, may
nonetheless be able to successfully use their client relationships to enter our
target market or prevent our penetration into their client accounts. We believe
that our primary competitors currently include, without limitation, Broadvision,
Open Market, Commerce One, Ariba, VerticalNet, Intel, Microsoft, AT&T,
Intershop, MCI Worldcom, Yahoo! Stores, ICAT, GE Information Services, IBM, and
smaller Internet services providers.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, certain of which may be larger
and have greater financial and other resources than we have. Competition for
these acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition.
There are relatively low barriers to entry in our business. Although we have
one patent application pending at this time, we have no patented, and only a
limited amount of other proprietary, technology that would preclude or inhibit
competitors from entering the electronic commerce services market. Therefore, we
must rely on the skill of our personnel and the quality of our client service.
The costs to develop and provide electronic commerce services are relatively
low. Therefore, we expect that we will continually face additional competition
from new entrants into the market in the future, and we are subject to the risk
that our employees may leave us and may start competing businesses. The
emergence of these enterprises could have a material adverse effect on our
business, prospects, financial condition, and results of operations. See
"Business--Industry Background--Electronic Commerce Services Industry" and
"Business--Competition."
21
<PAGE>
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
We are not currently subject to direct regulation by any government agency
other than laws or regulations applicable generally to electronic commerce. Any
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services, could have a material adverse effect on our business, prospects,
financial condition, and results of operations. Due to the increasing popularity
and use of the Internet and other online services, federal, state, and local
governments may adopt laws and regulations, or amend existing laws and
regulations, with respect to the Internet or other online services covering
issues such as taxation, user privacy, pricing, content, copyrights,
distribution, and characteristics and quality of products and services. In 1998,
the United States Congress established the Advisory Committee on Electronic
Commerce which is charged with investigating, and making recommendations to
Congress regarding, the taxation of sales by means of the Internet. Furthermore,
the growth and development of the market for electronic commerce may prompt
calls for more stringent consumer protection laws to impose additional burdens
on companies conducting business online. The adoption of any additional laws or
regulations upon the recommendation of this Advisory Committee or otherwise may
decrease the growth of the Internet or other online services, which could, in
turn, decrease the demand for our services and increase our cost of doing
business, or otherwise have a material adverse effect on our business,
prospects, financial condition, and results of operations. Moreover, the
relevant governmental authorities have not resolved the applicability to the
Internet and other online services of existing laws in various jurisdictions
governing issues such as property ownership and personal privacy and it may take
time to resolve these issues definitively.
RISKS SPECIFIC TO THIS OFFERING
OUR COMMON STOCK TRADES SPORADICALLY, THE OFFERING PRICE OF OUR COMMON STOCK
IS ARBITRARY, THE MARKET PRICE OF OUR SECURITIES MAY BE VOLATILE, AND WE
MUST SATISFY THE APPLICABLE REQUIREMENTS FOR OUR COMMON STOCK TO TRADE ON
THE NASDAQ NATIONAL MARKET.
Our common stock currently trades sporadically on the OTC Bulletin Board. We
have applied to have our common stock quoted on the Nasdaq National Market
commencing on the date of this prospectus. Even if our common stock were quoted
on the Nasdaq National Market, the market for our common stock may not be an
active market. Accordingly, unless and until an active public market develops,
you may have difficulty selling your shares of common stock at a price that is
attractive to you.
The initial public offering price of the shares was arbitrarily determined
by negotiations between the underwriters and us principally on the basis of the
market price for our common stock prior to the date of this prospectus. See
"Underwriting." From time to time after this offering, the market price of our
common stock may experience significant volatility. Our quarterly results,
failure to meet analysts expectations, announcements by us or our competitors
regarding acquisitions or dispositions, loss of existing clients, new procedures
or technology, changes in general conditions in the economy, and general market
conditions could cause the market price of the common stock to fluctuate
substantially. In addition, the stock market has experienced significant price
and volume fluctuations that have particularly affected the trading prices of
equity securities of many technology companies. These price and volume
fluctuations often have been unrelated to the operating performance of the
affected companies. In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. This type of litigation, regardless of
the outcome, could result in substantial costs and a diversion of management's
attention and resources, which could materially adversely affect our business,
prospects, financial condition, and results of operations.
22
<PAGE>
Under the currently effective criteria for initial listing of securities on
the Nasdaq National Market, a company must have at least $75 million in market
capitalization, a minimum bid price of $5.00 per share, and securities in the
hands of the public with a market value of at least $20 million. For continued
listing, a company must maintain $50 million in market value, a minimum bid
price of $5.00, and a public float of at least $15 million. If we cannot
maintain the standards for continued listing, our common stock could be subject
to delisting from the Nasdaq National Market. Trading, if any, in our common
stock would then be conducted in either the Nasdaq SmallCap Market or in the
over-the-counter market on the OTC Bulletin Board established for securities
that do not meet the Nasdaq SmallCap Market listing requirements or in what are
commonly referred to as the "pink sheets." As a result, an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, our shares.
YOU MAY HAVE DIFFICULTY SELLING YOUR SHARES OF COMMON STOCK AND THE MARKET
PRICE OF OUR COMMON STOCK MAY DECLINE IF CRUTTENDEN ROTH OR PENNSYLVANIA
MERCHANT GROUP DISCONTINUES MAKING A MARKET FOR ANY REASON
A significant number of the shares sold in this offering may be sold to
customers of the underwriters. These customers may engage in transactions for
the sale or purchase of the shares through or with the underwriters. Although
they have no obligation to do so, Cruttenden Roth and Pennsylvania Merchant
Group intend to make a market in our shares and may otherwise effect
transactions in our common stock. If Cruttenden Roth and Pennsylvania Merchant
Group participate in the market, it may influence the market, if one develops,
for our common stock. Either of these firms may discontinue making a market in
the common stock at any time. Moreover, if either of these firms sells the
shares of common stock issuable upon exercise of the representatives' warrants,
that firm may be required under the Exchange Act to temporarily suspend its
market-making activities. The price and liquidity of the common stock may be
significantly affected by the degree, if any, of the direct or indirect
participation of that firm in the market.
INVESTORS WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
The public offering price per share in this offering exceeds the net
tangible book value per share of our outstanding common stock immediately after
the offering. Accordingly, if you purchase shares in this offering, you will
- pay a price per share which substantially exceeds the value of our assets
after subtracting our intangible assets and liabilities and
- contribute 47.2% of the total amount invested to date to fund us, but will
only own 19.4% of the shares of common stock outstanding.
SIGNIFICANT ADDITIONAL DILUTION IF OUTSTANDING OPTIONS AND WARRANTS ARE
EXERCISED
We also have outstanding stock options to purchase approximately
2.1 million shares of common stock and warrants and convertible or exchangeable
securities to purchase approximately 1.6 million shares of common stock, some of
which have exercise prices significantly below the public offering price of our
common stock in this offering. To the extent such options or warrants are
exercised, there will be further dilution. In addition, in the event that any
future financing should be in the form of, be convertible into, or exchangeable
for, equity securities, and upon the exercise of options and warrants, investors
may experience additional dilution. See "Dilution."
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY
AFFECT OUR STOCK PRICE
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering, or
the perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. After this offering, we will have outstanding
15,495,768
23
<PAGE>
shares of common stock. Of these shares, an aggregate of 5,481,567 shares,
including the 3,000,000 shares being offered in this offering, will be freely
tradeable. Our directors and officers and a number of our stockholders who hold
together an aggregate of 7,698,988 shares have entered into lock-up agreements
by which they have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of the underwriters for
a period of six months from the date of this prospectus. Giving effect to these
lock-up agreements and applicable legal restrictions, the number of shares of
common stock and the dates when these shares will become freely tradeable in the
market is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
5,309,913 At the date of this prospectus (including the 3,000,000 shares of common stock in this
offering)
1,304,737 Within six months from the date of this prospectus
8,881,118 Between six and twelve months from the date of this prospectus
</TABLE>
As of the date of this prospectus, we have reserved an aggregate of
1,634,174 shares of common stock issuable upon the exercise of outstanding
warrants and convertible or exchangeable securities. Following this offering, we
intend to file a registration statement to register for issuance and resale the
8,000,000 shares of common stock reserved for issuance under our existing stock
option plans described in "Management--Stock Option Plans." We expect that
registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under our stock option plans
will be eligible for resale in the public market from time to time subject to
vesting and, in the case of some options, the expiration of the lock-up
agreements referred to in the preceding paragraph. We also intend to file a
registration statement to register the resale of approximately 480,000 of the
shares of common stock which we issued in October 1999 upon the exercise of
outstanding warrants on a cashless basis, as well as 400,000 shares of common
stock which we issued or are issuable upon the conversion of our convertible
debentures.
Some of our stockholders, holding approximately 1,511,429 shares of common
stock or holding securities convertible into or exercisable or exchangeable for
shares of common stock, have the right, subject to a number of conditions and
limitations, to include their shares in registration statements relating to our
securities. Stockholders holding these shares have waived this right with
respect to this offering. By exercising their registration rights and causing a
large number of shares to be registered and sold in the public market, these
holders may cause the market price of the common stock to fall. In addition, any
demand to include these shares in our registration statements could have an
adverse effect on our ability to raise needed capital.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements and information relating
to Netgateway. We intend to identify forward-looking statements in this
prospectus by using words such as "believes," "intends," "expects," "may,"
"will," "should," "plan," "projected," "contemplates," "anticipates,"
"estimates," "predicts," "potential," "continue," or similar terminology. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties, and assumptions. Actual future results may differ significantly
from the results discussed in the forward-looking statements. Some, but not all,
of the factors that may cause such a difference include those which we discuss
in the Risk Factors section of this prospectus beginning on page 10.
24
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$20.3 million from the sale of the common stock offered by us in this offering,
assuming a public offering price of $8.00 per share. If the underwriters
exercise their over-allotment option in full, we will receive net proceeds of
approximately $23.5 million. These estimates are after deducting estimated
underwriting discounts and commissions and other fees and expenses payable by
us.
We intend to use approximately $6.8 million, or 33.5%, of the net proceeds
of this offering to repay indebtedness incurred in connection with our May
through September 1999 private placement of $6,458,500 principal amount of
Series A 12% Senior Notes due 2000 and 660,850 shares of common stock and
$150,000 principal amount of notes issued to settle a financial obligation in
May 1999. The notes are due on the earlier of April 30, 2000 or completion of
this offering and accrue interest at the rate of 12% per annum. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
We intend to use approximately $3.7 million, or 18.2%, of the estimated net
proceeds of this offering to expand our marketing efforts. With respect to our
marketing efforts conducted directly, we intend to begin to do the following:
- advertise on the Internet;
- advertise on television in selected markets;
- direct mail;
- conduct targeted e-mail campaigns;
- advertise in technology, financial, and business publications having wide
readership; and
- expand our sales staff.
With respect to our marketing efforts conducted through resellers, we intend to
do the following:
- create a group within our sales staff trained to assist resellers in
marketing our products and services to their customers, members,
employees, and relationships;
- create branded promotional brochures and other marketing materials to
inform resellers and their constituencies as to our products and services,
and
- advertise in trade publications in strategic industries.
See "Risk Factors--Our Marketing Strategy Has Not Been Tested and May Not Result
in Success."
We intend to use approximately $1.3 million, or 6.4%, of the estimated net
proceeds of this offering for research and development and for the continued
enhancement of our ICC eCommerce transaction processing system. See
"Business--Research and Development."
We intend to use approximately $3.6 million, or 17.7%, of the estimated net
proceeds of this offering for the acquisition of capital equipment to purchase
or otherwise acquire computers, servers, communication hardware and software,
and networking equipment.
The balance of the net proceeds, estimated to be approximately
$4.9 million, or 24.2%, of the estimated net proceeds of this offering will be
used for general corporate and working capital purposes to fund the ongoing cash
flow and capital requirements associated with our growth, including the
retention and training of additional personnel. We may also use a portion of the
net proceeds allocated for general corporate and working capital purposes to
acquire, or invest in, businesses and technologies. From time to time we
evaluate such potential acquisitions and we anticipate continuing to make such
evaluations. In this regard, we are currently evaluating certain acquisition and
investment opportunities;
25
<PAGE>
however, we cannot assure you that we will identify suitable acquisition or
investment candidates or that we will, in fact, complete any acquisition or
investment.
Under the Securities Act, the rules and regulations under the Securities
Act, and the interpretations of the Commission, we may be required to offer
rescission to investors in our May through September 1999 private placement.
These investors hold $6,458,500 principal amount of our 12% Senior Notes due
2000, which notes we are required to repay with a portion of the net proceeds of
this offering. See "Risk Factors--We May Be Required To Use Funds Which We Would
Otherwise Use For Growth To Rescind Our May through September 1999 Private
Placement."
We believe that the net proceeds from this offering, together with
anticipated revenues from operations, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements for at least
the next 18 months. Our belief is based on our operating plan which in turn is
based on assumptions, which may prove to be incorrect. As a result, our
financial resources may not be sufficient to satisfy our capital requirements
for this period. In addition, we may need to raise significant additional funds
sooner in order to support our growth, develop new or enhanced services and
products, respond to competitive pressures, acquire or invest in complementary
or competitive businesses or technologies, or take advantage of unanticipated
opportunities. If our financial resources are insufficient and, in any case,
after this 18-month period, we will require additional financing in order to
meet our plans for expansion. We cannot be sure that this additional financing,
if needed, will be available on acceptable terms or at all. Furthermore, any
additional debt financing, if available, may involve restrictive covenants,
which may limit our operating flexibility with respect to business matters. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our existing stockholders will be reduced, our
stockholders may experience additional dilution in net book value per share, and
such equity securities may have rights, preferences, or privileges senior to
those of our existing stockholders. If adequate funds are not available on
acceptable terms, we may be unable to develop or enhance our services and
products, take advantage of future opportunities, repay debt obligations as they
become due, or respond to competitive pressures, any of which would have a
material adverse effect on our business, prospects, financial condition, and
results of operations. See "Risk Factors--We Cannot Predict Our Future Capital
Needs And May Not Be Able to Secure Additional Financing," "Use of Proceeds,"
"Dilution," and "Business--Business Strategy."
Although, based upon our contemplated operations, business plan, and current
economic and industry conditions, the above is our best estimate of the amount,
timing, and allocation of the expenditures of the net proceeds of this offering,
such estimated amounts are subject to reallocation within the listed categories
or to new categories in response to a number of unanticipated events. These may
include changes in our business plans, new government regulations, changing
industry conditions, and future revenues and expenditures.
26
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the OTC Bulletin Board since July 6,
1998. The following table sets forth, for the fiscal periods indicated, the
quarterly high and low sales prices for our common stock, as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter (from July 6, 1998)............................................................... $ 11 1/8 $ 6 3/8
Second Quarter.................................................................................. 9 3/4 2 1/4
Third Quarter................................................................................... 13 1/4 4 3/4
Fourth Quarter.................................................................................. 15 5/8 9 1/4
FISCAL YEAR ENDING JUNE 30, 2000
First Quarter (through November 9, 1999)........................................................ 11 15/16 6 7/8
</TABLE>
The last reported sale price of our common stock on the OTC Bulletin Board
on November 9, 1999 was $7.812 per share. As of November 9, 1999, there were 457
holders of record of our common stock.
DIVIDEND POLICY
We have never paid or declared any cash dividends. We currently expect to
retain future earnings, if any, to finance the growth and development of our
business. Therefore, we do not anticipate paying any cash dividends on our
shares in the foreseeable future.
27
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1999:
- our actual short-term debt and capitalization,
- our pre-offering as adjusted short-term debt and capitalization, which
gives effect to (1) $522,500 of the net proceeds from our May through
September 1999 private placement of securities received by us after
September 30, 1999, (2) the issuance of 270 shares of common stock in
November 1999 upon the exercise of outstanding warrants for $270; (3) the
issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures; (4) the issuance of
962,444 shares of common stock upon the exercise of outstanding warrants
on a cashless basis during October 1999, and (5) the issuance to three of
our executive officers of an aggregate of 1,200,000 shares of common stock
in October 1999 which may be forfeited by these individuals if they should
end their employment with us prior to vesting in exchange for outstanding
options under our existing stock option plans, and
- our post-offering as adjusted short-term debt and capitalization, which
give effect to (1) $522,500 of the net proceeds from our May through
September 1999 private placement of securities received by us after
September 30, 1999, (2) the issuance of 270 shares of common stock in
November 1999 upon the exercise of outstanding warrants for $270; (3) the
issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures; (4) the issuance of
962,444 shares of common stock upon the exercise of outstanding warrants
on a cashless basis during October 1999, (5) the issuance to three of our
executive officers of an aggregate of 1,200,000 shares of common stock in
October 1999 which may be forfeited by these individuals if they should
end their employment with us prior to vesting in exchange for outstanding
options under our existing stock option plans, and (6) our receipt of net
proceeds of approximately $20.3 million from the sale of the shares in
this offering at the assumed public offering price of $8.00 per share and
the initial application of the net proceeds of this offering as described
under the heading "Use of Proceeds."
The data below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our financial
statements and related notes and other financial information included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------------
PRE-OFFERING POST-OFFERING
ACTUAL AS ADJUSTED AS ADJUSTED
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt.................................................. $ 3,424,330 $ 3,561,830 $ 181,799
Stockholders' equity
Common stock--$0.001 par value, authorized--40,000,000 shares;
issued and outstanding--10,322,554 shares, actual;
12,495,768 shares as adjusted; and 15,495,768 shares, as
further adjusted............................................. 10,323 12,496 15,496
Additional paid-in capital....................................... 18,402,614 26,837,565 47,184,565
Deferred compensation............................................ (34,380) (8,434,380 (8,434,380)
Stock subscription receivable.................................... (350,000) -- --
Accumulated other comprehensive loss............................. (4,656) (4,656) (4,656)
Accumulated deficit.............................................. (18,891,007) (18,894,814) (22,756,601)
-------------- -------------- --------------
Total stockholders' equity (deficit)............................. (867,106) (483,158) 16,004,424
-------------- -------------- --------------
Total short-term debt and capitalization......................... $ 2,557,224 $ 3,078,672 $ 16,186,223
============== ============== ==============
</TABLE>
28
<PAGE>
DILUTION
As of September 30, 1999, our net tangible net book value (deficit) was
$(2,790,004) or approximately $(0.27) per share of common stock based on
10,322,554 shares of common stock outstanding. The net tangible book value per
share represents the amount of our total assets less the amount of our
intangible assets and our liabilities, divided by the number of shares of common
stock outstanding at September 30, 1999.
After giving effect to
- our receipt after September 30, 1999 of estimated net proceeds of $522,500
from our May through September 1999 private placement,
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999, and
- the issuance to three of our executive officers of an aggregate of
1,200,000 shares of common stock in October 1999 which may be forfeited by
these individuals if they should end their employment with us prior to
vesting in exchange for outstanding stock options under our existing stock
option plans,
our pre-offering pro-forma net tangible book value (deficit) at September 30,
1999 would have been $(2,404,634) or approximately $(0.19) per share of common
stock.
After giving effect to
- our receipt after September 30, 1999 of net proceeds of $522,500 from our
May through September 1999 private placement of securities
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999, and
- the issuance to three of our executive officers of an aggregate of
1,200,000 shares of common stock in October 1999 which may be forfeited by
these individuals if they should end their employment with us prior to
vesting in exchange for outstanding stock options under our existing stock
option plans, and
- our receipt of estimated net proceeds of approximately $20.3 million from
our sale of 3,000,000 shares of common stock offered in this offering at
the assumed public offering price per share of $8.00 and the initial
application of those proceeds as described under the heading "Use of
Proceeds,"
Our post-offering pro forma as adjusted net tangible book value at September
30, 1999 would have been $14,492,892 or approximately $.94 per share of common
stock. This represents an increase in the pro forma as adjusted net tangible
book value of $1.21 per share to existing stockholders and an
29
<PAGE>
immediate dilution in the pro forma as adjusted net tangible book value of $7.06
per share, or 88.3%, to investors in this offering. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
PER SHARE OF
COMMON
STOCK
--------------------
<S> <C> <C>
Assumed public offering price.................................................................. $ 8.00
Actual tangible book value (deficit) at September 30, 1999................................... $ (0.27)
Increase in net tangible book value, giving effect to the Summer 1999
private placement and October and November 1999 stock issuances............................ 0.08
---------
Pre-offering pro forma net tangible book value (deficit)..................................... (.19)
Increase in net tangible book value.......................................................... 1.13
---------
Post-offering pro forma net tangible book value after this offering............................ .94
---------
Dilution of net tangible book value to new investors........................................... $ 7.06
=========
</TABLE>
The following table sets forth, as of the date of this prospectus:
- the number of shares of common stock purchased,
- the percentage of total shares of common stock purchased,
- the total consideration paid,
- the percentage of total consideration paid, and
- the average price per share of common stock paid by the investors in this
offering and our current stockholders.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- -------------------------- PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................... 12,495,768 80.6 $ 26,850,061 52.8% $ 2.15
New investors................................... 3,000,000 19.4 24,000,000 47.2 8.00
------------- --------- ------------- --------- ---------
Total........................................... 15,495,768 100.0% $ 50,850,061 100.0% $ 3.28
============= ========= ============= ========= =========
</TABLE>
30
<PAGE>
SELECTED FINANCIAL DATA
The following selected statements of operations data for the period from our
inception on March 4, 1998 through June 30, 1998 and the year ended June 30,
1999 and the selected balance sheet data as of June 30, 1999 are derived from
our consolidated financial statements and related notes included elsewhere in
this prospectus audited by KPMG LLP, our independent auditors. The selected
financial data as of and for the three months ended September 30, 1999 is
unaudited. The selected balance sheet data as of September 30, 1999 is
unaudited. The selected statement of operations data for the period from our
inception on March 4, 1998 through June 30, 1998 includes the results of
operations of Infobahn Technologies LLC (dba Digital Genesis) from June 2, 1998,
its date of acquisition, and the pro forma selected statement of operations data
for such period includes the operations of Digital Genesis and Spartan
Multimedia, Inc. as if they were acquired by us on March 4, 1998. The selected
statement of operations data for the year ended June 30, 1999 includes the
results of operations of Spartan Multimedia, Inc. from January 15, 1999, its
date of acquisition, and the pro forma selected statement of operations data for
such period includes the operations of Spartan Multimedia, Inc. as if it was
acquired by us on July 1, 1998. The pre-offering pro forma balance sheet data as
of September 30, 1999 is adjusted to reflect:
- the receipt of $522,500 of net the proceeds from our May through September
1999 private placement of securities received by us after September 30,
1999;
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999; and
- the issuance to three of our executives of an aggregate of
1,200,000 shares of common stock in October 1999 which may be forfeited by
these individuals if they should end their employment with us prior to
vesting in exchange for outstanding stock options under our existing stock
option plans.
The post-offering proforma, as adjusted balance sheet as of September 30,
1999 is adjusted to reflect:
- the receipt of $522,500 of the net proceeds from our May through September
1999 private placement of securities received by us after September 30,
1999;
- the issuance of 270 shares of common stock in November 1999 upon the
exercise of outstanding warrants for $270;
- the issuance of 8,000 shares of common stock in October 1999 upon the
conversion of $20,000 of convertible debentures;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999;
- the issuance to three of our executives of an aggregate of
1,200,000 shares of common stock in October 1999 which may be forfeited by
these individuals if they should end their employment with us prior to
vesting in exchange for outstanding stock options under our existing stock
option plans; and
- the receipt of estimated net proceeds of approximately $20.3 million from
the sale of our common stock at the assumed public offering price of $8.00
per share and the initial application of these proceeds as described under
"Use of Proceeds."
31
<PAGE>
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and the related notes appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 4, 1998 CUMULATIVE PERIOD
(INCEPTION) THROUGH THREE MONTHS FROM MARCH 4, 1998
JUNE 30, 1998 ENDED
SEPTEMBER 30, (INCEPTION)
YEAR ENDED JUNE 30, 1999 THROUGH SEPTEMBER
---------------------- ------------------------ 30, 1999(2)
ACTUAL PRO FORMA ACTUAL PRO FORMA 1998 1999
---------- ---------- ----------- ----------- ----------- ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... $ 2,800 $ 124,325 $ 143,426 $ 146,867 $ 22,470 $ 212,733 $ 358,959
Total operating expenses.... 4,555,459 4,736,557 11,303,848 11,518,898 1,778,173 3,014,976 18,874,283
Interest expense............ 19,277 19,277 925,097 925,097 2,408 1,029,812 1,974,186
Net loss before
extraordinary item........ (4,571,936) (4,631,509) (12,140,248)(1) (12,351,857)(1) (1,812,840) (3,832,055) (20,544,239)(1)
Loss before extraordinary
item per weighted average
common share outstanding
(basic and diluted)....... (0.84) (0.81) (1.36)(1) (1.39)(1) (.22) (0.38) (2.26)(1)
Weighted average common
shares outstanding (basic
and diluted).............. 5,416,242 5,721,327 8,912,041 8,912,041 8,280,801 10,017,740 8,372,298
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
JUNE 30, -------------------------------------
---------------------- PRO FORMA,
1998 1999 ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................................................. $ 371,467 $1,379,326 $2,441,451 $2,962,899 $15,871,445
Total assets................................................... 871,552 3,458,350 4,617,114 5,138,562 18,047,108
Working capital (deficit)...................................... (1,959,776) (1,545,420) (3,042,769) (2,658,821) 13,828,761
Shareholders' equity (deficit)................................. (1,827,583) 545,291 (867,106) (483,158) 16,004,424
</TABLE>
- ------------------------
(1) Before extraordinary gain of $1,653,232 relating to extinguishment of
indebtedness of $0.19, $0.19, and $0.20 per weighted-average common shares
outstanding during the year ended June 30, 1999 actual, pro forma and the
cumulative period from March 4, 1998 (inception) through September 30,
1999, respectively.
(2) The cumulative period statement of operations data is included in
accordance with generally accepted accounting principles since we are a
development stage company.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PORTIONS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED BY THIS FORWARD-LOOKING INFORMATION.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED UNDER THE HEADING "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE
RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
IN GENERAL
We provide turn-key electronic commerce services designed to enable clients
to extend their business to the Internet to conduct commercial transactions
between business enterprises.
As of June 30, 1999 and September 30, 1999, we had a working capital
deficiency of $1,545,420 and $3,042,769, respectively and stockholders' equity
(deficit) of $545,291 and $(867,106), respectively. We generated revenues of
$2,800 during the period from our inception on March 4, 1998 through June 30,
1998, revenues of $143,426 during the year ended June 30, 1999 and revenues of
$212,733 during the three months ended September 30, 1999. We have incurred net
losses since inception and expect to continue to generate operating losses for
the foreseeable future. We may never achieve profitability. In addition, during
the period from our inception on March 4, 1998 through June 30, 1998, the year
ended June 30, 1999 and the three months ended September 30, 1999, we incurred
negative cash flows from operations of $253,119, $4,552,912 and $2,156,738,
respectively.
We are in the early stage of operations and, as a result, the relationships
between revenue, cost of revenue, and operating expenses reflected in the
financial information included in this prospectus do not represent future
expected financial relationships. Much of the cost of revenue and operating
expenses reflected in our financial statements are relatively fixed costs. We
expect that these expenses will increase with the escalation of sales and
marketing activities and transaction volumes, but at a much slower rate of
growth than the corresponding revenue increase. Accordingly, we believe that, at
our current stage of operations, period to period comparisons of results of
operations are not meaningful.
During the year ended June 30, 1999, we estimate that approximately 95% of
our revenues were attributable to Web site development and design and the
development of electronic storefronts, and 5% were attributable to transaction
processing. We anticipate that, over the next three years, as we implement our
operating and expansion plan, approximately
- 20% of our revenues will be attributable to Web site development and
design and the development of electronic storefronts,
- 50% of our revenues will be attributable to Internet-based shopping mall
development and design,
- 25% of our revenues will be attributable to transaction processing, and
- the remainder will be attributable to data warehousing and transaction
reporting, customer support services, advertising, and provision of
connectivity solutions.
During the year ended June 30, 1999 and three months ended September 30,
1999, we expended our resources principally in development of our technology. We
anticipate that, over the next three years, as we implement our operating and
expansion plan, approximately
- 30% of our expenditures will be attributable to Web site development and
design and the development of electronic storefronts,
33
<PAGE>
- 45% of our expenditures will be attributable to Internet-based shopping
mall development and design,
- 20% of our expenditures will be attributable to transaction processing,
and
- the remainder will be attributable to data warehousing and transaction
reporting, customer support services, advertising, and provision of
connectivity solutions.
Based on our operating and expansion plan, we anticipate that, over the next
three years,
- greater revenue growth as a percentage of revenues will be attributable to
transaction processing than to Web site development and design and
Internet-based shopping mall development and design, and
- as transaction volume through our ICC increases, our gross margins and
operating margins will increase as the relatively fixed costs associated
with these activities is spread over such larger volume of transactions.
From our inception on March 1, 1998 until June 1998, our business plan was
to engage in the licensing and distribution of software support materials for
the governmental and educational markets. The principal licenses into which we
entered during this time period were related to the proprietary courseware of
Pro-Soft I-Net, a software and Internet training solutions provider. As a result
of changes in the software market and the related training and support materials
market, we determined to change our business plan to the development of
technology to enable businesses and other organizations to engage in electronic
commerce. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Related Party
Transactions."
Our strategic focus is on the business-to-business Internet commerce market,
and we believe that our success will depend in large part on
- our ability to develop products and technologies that enable businesses to
transact business-to-business Internet commerce efficiently and
effectively,
- our ability to identify and position ourselves as a significant
participant in the business-to-business Internet commerce market, and
- the willingness of the market place to adapt and engage in electronic
commerce.
Accordingly, we intend to continue to invest in product, technology, and
operating infrastructure development, as well as in the acquisition of companies
that offer development or technological resources.
Because we have a limited operating history, given planned investment
levels, our achieving profitability depends upon our ability to obtain
sufficient numbers of new customers and sufficient numbers of Internet commerce
transactions using our services. This can be accomplished by signing up
sufficient numbers of customers for services through our ICC and/or attaining a
significant volume of transactions through our ICC. Our revenues will also be
dependent on determining and obtaining sufficient levels of fees for the
services offered. In the event that we are unable to attain one or more of these
goals, we may continue to incur substantial operating losses for the foreseeable
future.
FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY
In view of the rapidly evolving nature of our business and its limited
operating history, we believe that period-to-period comparisons of our operating
results, including our gross profit and operating expenses as a percentage of
net sales, are not necessarily meaningful and should not be relied upon as an
indication of future performance. See "Risk Factors--Fluctuations In Our
Operating Results May Affect Our Stock Price."
34
<PAGE>
We cannot predict the degree to which we will experience seasonality in our
business because of our limited operating history, and the fact that we cannot
identify which companies, if any, we will acquire in the foreseeable future.
RESULTS OF OPERATIONS
We had no meaningful operating results through September 30, 1999, as we
focused on the development of our ICC services and technology.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses consist of payroll and related
expenses for executive, sales, marketing, accounting, and administrative
personnel, recruiting, professional fees, research and development, and other
general corporate expenses. We expect selling, general, and administrative
expenses to increase in absolute dollars as we expand our staff and incur
additional costs related to the growth of our business.
INTEREST EXPENSE
Interest expense of $925,097 and $1,029,812 was incurred during the year
ended June 30, 1999 and three months ended September 30, 1999 respectively,
primarily related to amortization of debt issuance costs and debt discount.
INCOME TAXES
We have not generated any taxable income to date and therefore have not paid
any federal income taxes since our inception. Utilization of our net operating
loss carry forwards, which begin to expire in 2013, may be subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986, as amended.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, our cash was $956,636. Net cash used by operating
activities was $2,156,738 for the three months ended September 30, 1999.
MARCH 4, 1998 (INCEPTION) THROUGH JUNE 30, 1998
Net cash used in operations was $253,119 from March 4, 1998 (inception)
through June 30, 1998, which resulted from net losses of $4,571,936 from
inception adjusted principally for non-cash expenses of $3,822,000 in
amortization and write-off of license fees and $371,680 of stock based
compensation. See "Related Party Transactions."
We were established as eClassroom and, shortly thereafter, acquired two
exclusive sublicenses to sell proprietary ProSoft I-Net Solutions courseware to
governmental and educational markets. To date, we have not been successful at
generating any revenue from these sublicenses. These licenses have since been
terminated and we believe that we have no further obligations to make additional
payments under such licenses. We wrote off $3,822,000 in the period ended
June 30, 1998, representing the carrying cost of such licenses. In May 1999, the
sublicensors paid an additional $200,000 to ProSoft to terminate these license
agreements and to settle all obligations relating to them. See "Related Party
Transactions."
Net cash used in investing activities from March 4, 1998 (inception) through
June 30, 1998, was related principally to the purchase of $102,034 of fixed
assets and $75,000 of loans to customers. Net cash provided by financing
activities from March 4, 1998 (inception) through June 30, 1998 of $681,429
resulted from $649,000 of private placements of common stock, $132,429 from the
issuance of notes payable to related parties, and reduced by the repayment of
notes payable in the amount of $100,000.
35
<PAGE>
YEAR ENDED JUNE 30, 1999
Net cash used in operations was $4,552,912 during the year ended June 30,
1999, which resulted principally from net losses of $10,487,016 for such period
adjusted for non-cash items of gain on extinguishment of indebtedness of
$1,653,232, common stock issued for services in the amount of $1,262,200,
compensation expense for contributed capital of $400,000, interest and
amortization of debt issue costs of $679,535, options and warrants issued for
services in the amount of $2,820,428, the provision for doubtful accounts of
$26,876, and the write-off of an $800,000 note receivable. Accounts payable and
accrued liabilities increased by $1,220,010.
Net cash used in investing activities for the year ended June 30, 1999 was
related to the purchase of equity securities in the amount of $100,733, a loan
to Admor of $800,000, a loan to an officer of $30,000, and the purchase of
$250,579 of fixed assets. Net cash provided by financing activities during the
year ended June 30, 1999 of $5,951,912 resulted from $4,253,360 of private
placements of common stock, $264,200 from the exercise of warrants, $2,506,000
from the issuance of notes payable and convertible debentures, $100,000 from the
issuance of notes payable to related parties, $181,018 of cash paid for debt
issue costs and the repayment of notes payable in the amount of $990,630.
In June 1998, we commenced an offering of 1,022,800 units, each consisting
of one share of common stock at $2.00 per share and one warrant, expiring on
October 9, 1998, to purchase one additional share of common stock at $4.00 per
share. By June 30, 1998, $146,000 had been received. During the three months
ended September 30, 1998, 949,800 units were issued for $1,899,600. In January
and February 1999, we received $1,000,000 from the sale of convertible
debentures at a conversion price of $2.50 per share. During March through May
1999, we sold 326,334 shares in a private placement for $3.00 per share and
received gross proceeds of $979,000.
In May and June 1999, we sold in a private placement a total of $2,880,000
principal amount of our 12% promissory notes due on the earlier of April 30,
2000 or completion of this offering. As part of this transaction, we issued to
the investors a total of 288,000 shares of our common stock and 144,000 warrants
with a fair value of $301,300. In May 1999, the Company issued $150,000 of 12%
notes due on the earlier of April 30, 2000 or completion of this offering as
settlement for a financial obligation. Additionally, 15,000 shares of common
stock were issued as part of the settlement agreement. See "Risk Factors--We May
Be Required To Use Funds Which We Would Otherwise Use For Growth To Rescind Our
May through September 1999 Private Placement."
In connection with the ProSoft licenses, we assumed notes issued by the
previous holders of those licenses in the amount of $3,300,000. In December
1998, the remaining balance of $1.8 million due on the notes was cancelled. See
"Related Party Transactions."
In March 1999, Keith D. Freadhoff, our Chairman of the Board of Directors,
loaned $100,000 to us on an interest-free basis. We repaid the loan in May 1999.
As of June 30, 1999, our principal sources of liquidity consisted of
$569,472 in cash. As of that date, our principal commitments consisted of
operating leases and commitments for advertising and promotional arrangements.
Although we have no material commitments for capital expenditures, we anticipate
a substantial increase in our capital expenditures and lease commitments
consistent with anticipated growth in operations, infrastructure, and personnel.
THREE MONTHS ENDED SEPTEMBER 30, 1999
Net cash used in operations was $2,156,738 during the three months ended
September 30, 1999, which resulted principally from net losses of $3,832,055 for
such period adjusted for non-cash items of common stock issued for services in
the amount of $14,400, amortization of deferred compensation of $24,224,
amortization of debt issue costs and debt discount of $913,712, and options
issued for services in the amount of $5,105. Accounts payable and accrued
liabilities increased by $886,477.
36
<PAGE>
Net cash used in investing activities for the three months ended September
30, 1999 was related to the repayment of notes receivable of $30,000 and the
purchase of $229,331 of fixed assets. Net cash provided by financing activities
during the three months ended September 30, 1999 of $2,744,291 resulted from
$1,890,269 of private placements of common stock, $957,450 from the issuance of
notes payable and $103,428 of cash paid for debt issue costs.
In August and September 1999, we sold in a private placement a total of
$3,578,500 principal amount of our 12% promissory notes due on the earlier of
April 30, 2000 or completion of this offering. As part of this transaction, we
issued to the investors a total of 357,850 shares of our common stock of which
$500,000 was received in October 1999 and 149,375 warrants with a fair value of
$396,500. See "Risk Factors--We May Be Required To Use Funds Which We Would
Otherwise Use For Growth To Rescind Our May through September 1999 Private
Placement."
In July 1999 we issued 50,000 shares of common stock valued at $300,000 for
prepaid advertising. We also issued 2,400 shares of common stock valued at
$14,400 for services in July 1999.
In September 1999, we began offering to holders of certain of our
outstanding warrants the right to exercise warrants on a cashless basis.
As of September 30, 1999, our principal sources of liquidity consisted of
$956,636 in cash. As of that date, our principal commitments consisted of
operating leases and commitments for advertising and promotional arrangements.
Although we have no material commitments for capital expenditures, we anticipate
a substantial increase in our capital expenditures and lease commitments
consistent with anticipated growth in operations, infrastructure, and personnel.
RECENT ACTIVITY
On October 13, 1999, warrants exercisable for an aggregate of 1,184,730
shares of common stock were exercised on a cashless basis for an aggregate of
962,444 shares of our common stock. Our purpose in taking this action was to
decrease the number of warrants outstanding.
In October 1999, we issued to three of our executives an aggregate of
1,200,000 shares of common stock which may be forfeited by these individuals if
they should end their employment with us prior to vesting in exchange for an
aggregate of 1,980,000 stock options outstanding under our existing stock option
plans and terminated additional stock options under these plans exercisable for
an aggregate of 316,667 shares of common stock. Our purpose in taking this
action was to decrease the number of stock options outstanding under our
existing stock option plans. See "Management--Executive Compensation."
In October 1999, we received $500,000 relating to our May through September
1999 private placement.
In October 1999, we sold in a private placement a total of $25,000 principal
amount of our 12% promissory notes due on the earlier of April 30, 2000 or
completion of this offering generating net proceeds of $22,500. As part of this
transaction, we issued to investors 2,500 shares of common stock and 1,250
warrants with a fair value of $3,349. See "Risk Factors--We May Be Required to
Use Funds Which We Would Otherwise Use For Growth To Rescind Our May Through
September 1999 Private Placement".
In October 1999, we issued 8,000 shares of common stock upon the conversion
of $20,000 of convertible debentures. In November 1999, we issued 270 shares of
common stock upon the exercise of warrants for $270.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are unable
to distinguish between 20th century dates and 21st century dates. As a result,
many companies' software and computer systems may need to be upgraded or
replaced to comply with these "Year 2000"
37
<PAGE>
requirements. Our business is dependent on the operation of numerous systems
that could potentially be impacted by Year 2000 related problems. Those systems
include, among others:
- hardware and software systems used by us to process transactions and
deliver other services to our clients, including our proprietary software
systems, as well as hardware and software supplied by third parties;
- communications networks, such as the Internet and private intranets, on
which we depend to permit electronic commerce transactions by our clients;
- the internal systems of our clients and suppliers;
- the hardware and software systems used internally by us in the management
of our business; and
- non-information technology systems and services used by us in our
business, such as telephone systems and building systems.
We have internally reviewed the proprietary software systems we use to
process transactions and deliver other services to our clients. Although we
believe that our internally developed applications and systems are designed to
be Year 2000 compliant, we utilize third-party equipment and software that may
not be Year 2000 compliant. Failure of third-party or currently owned equipment
or software to operate properly with regard to the Year 2000 could require us to
incur unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, prospects, financial condition, and results of
operations. We believe that our expenditures to upgrade our internal systems and
applications and replace non-compliant systems will not exceed $100,000 and will
not be material to our business, prospects, financial condition, and results of
operations. To date, we have incurred $20,000 in connection with our Year 2000
compliance activities. We have utilized, and intend to continue to utilize,
general working capital in order to fund these activities. We have not had to
defer any information technology projects as a result of these activities.
Furthermore, the success of our efforts may depend on the success of our
clients in dealing with their Year 2000 issues. Many of these organizations are
not Year 2000 compliant, and the impact of widespread client failure on our
systems is difficult to determine. Customer difficulties due to Year 2000 issues
could interfere with electronic commerce transactions or information, which
might expose us to significant potential liability. If client failures result in
the failure of our systems, our business, prospects, financial condition, and
results of operations would be materially adversely affected. Furthermore, the
purchasing patterns of these customers or potential customers may be affected by
Year 2000 issues as companies expend significant resources to become Year 2000
compliant. The costs of becoming Year 2000 compliant for current or potential
customers may result in reduced funds being available to purchase and implement
our applications and services.
We have implemented a Year 2000 program to assess and monitor Year 2000
issues with all of our significant clients, suppliers, and other third parties.
We have appointed a single individual to head our Year 2000 program. The
following significant parties, which provide us with essential or critical
systems, have certified through Year 2000 compliance testing or vendor
certification that such systems are Year 2000 compliant: Exodus Communications,
PAJO, Dell Computers, Intel, PAL Employer Services, Inc., Verisign, Inc., and
Thawte, Inc. We have identified and have contacted the following significant
parties by letter or telephone: PaymentNet, Cardservice International,
Authorizenet, eCommerce Exchange, Clear Exchange, XOOM.com, Inc., CB Richard
Ellis, Reliant Innovations, Inc., Wireless One, Inc., Found.com, Inc., On Track
Inc. (O.T.I. Cable Advertising), and Power Enterprises, Inc. We intend to
continue to contact these significant parties until there is either a
satisfactory determination that the significant party has reasonably addressed
any Year 2000 issues or, in the absence of such determination, until one or more
replacement parties are identified and engaged.
We have conducted a formal assessment of our Year 2000 exposure in order to
determine what steps beyond those identified by our internal review may be
advisable. We are presently developing a contingency plan for handling Year 2000
problems that are not detected and corrected prior to this occurrence and
anticipate completing this plan by October 1999. Our most likely worst case Year
2000 scenario is unknown at this time. Our failure to address any unforeseen
Year 2000 issue could materially adversely affect our business, prospects,
financial condition, and results of operations.
38
<PAGE>
BUSINESS
IN GENERAL
We provide turn-key electronic commerce services designed to enable clients
to extend their business to the Internet to conduct commercial transactions
between business enterprises. The HUB of our electronic commerce solution is our
proprietary ICC, which consists of the hardware, proprietary and licensed
software, and the related technical services necessary for our clients to
transact electronic commerce. We also design and build custom interfaces, or
SPOKES, to connect business clients to the ICC. Our ICC permits a continuum of
sophisticated and technologically complex, or scalable, solutions ranging from a
simple Internet storefront advertising their products and taking orders through
e-mail to a highly complex system of secure client extranets allowing vendors to
interact and transact business-to-business electronic commerce with one or more
specific customers.
In July 1999, we formed CableCommerce, a new operating division which
focuses upon providing electronic services and solutions to cable television
operators. Typically, CableCommerce will design, develop, host, and manage
branded Internet-based shopping malls in the markets served by the cable
television system operator featuring businesses local to each of these markets.
In addition, CableCommerce offers local and regional classified advertisements,
community calendars, and coupons, provides mall content, trains cable television
system sales people, and offers storefront creation and maintenance services to
the cable television system's subscribers. To date, we have entered into
contracts to provide these services with MediaOne, CableOne, Wireless One, and
Frontiervision Media Services.
INDUSTRY BACKGROUND
THE INTERNET
The Internet has grown rapidly in recent years, spurred by developments such
as
- inexpensive, readily available, and user-friendly Web browsers,
- a large and growing installed base of advanced personal computers,
- the adoption of faster and more cost efficient networks,
- the emergence of compelling Web-based content and commerce applications,
and
- the growing sophistication of the user base.
According to International Data Corp. ("IDC"), a leading research firm, the
number of Internet users was 98 million worldwide at the end of 1998 and will
continue to grow to 320 million by the end of 2002.
The broad acceptance of the Internet has led to the emergence of secure Web
sites accessible only within a given company, known as INTRANETS, and
specialized intranets also available to select outsiders, such as clients,
suppliers, or vendors, known as EXTRANETS, as new global communications and
commerce environments, representing a significant opportunity for enterprises to
interact in new, different, and highly efficient ways with customers, employees,
suppliers, and partners.
ELECTRONIC COMMERCE
The Internet presents opportunities to transform businesses and entire
industries as organizations exploit their potential to extend and enhance their
business activities and gain competitive advantage. Companies are using the
Internet to communicate and transact business on a one-to-one basis with
existing customers and to target and acquire new customers. At the same time,
companies are using the Internet to collaborate with their supply-chain partners
and manage distribution and other strategic
39
<PAGE>
relationships. The Internet has also allowed businesses to identify new product
and service offerings which extend and complement their core markets.
A number of organizations have projected that the volume of business
transacted by means of electronic commerce will grow substantially from present
levels. The United States Department of Commerce has estimated that
business-to-business commerce by means of the Internet will be a $300 billion
dollar marketplace by the year 2002. IDC has estimated that the total value of
goods and services purchased over the Internet grew from $318 million in 1995 to
an annualized amount of $5.4 billion in December 1996, and that sales are
projected to increase to $95 billion in 2000 and to $400 billion by 2002. This
firm has also projected that by the year 2002, 78% of all Internet commerce will
occur in the business-to-business sector. Currently, KPMG estimates that
business to business Internet commerce doubles approximately every 90 days.
ELECTRONIC COMMERCE SERVICES MARKET
IDC forecasts that the market for Internet and electronic commerce services
worldwide will grow from $4.6 billion in 1997 to $43.7 billion by 2002.
Forrester Research, another technology industry research firm, estimates that
the market for Internet and electronic commerce services will grow from
$5.4 billion in 1998 to $32.7 billion by 2002. These projections represent a
compound annual growth rate of more than 55% over these periods.
As a result of the recent growth of electronic commerce and its acceptance
as a mainstream medium for commercial transactions, businesses are investing in
the strategic use of Internet solutions to transform their core business and
technology strategies. This, in turn, has created a significant and growing
demand for third-party Internet professional services and has resulted in a
proliferation of companies offering specialized solutions, such as connectivity,
transaction reporting, security, and Web site design to business customers. This
specialization has resulted in a fragmented market that often requires the
business customer to seek solutions from a number of different providers using
differing, or even contradictory, strategies, models, and designs.
The successful adoption of, and adaptation to, the Internet by companies and
the conduct of commerce by means of the Internet pose significant challenges,
including systems engineering, technical, commercial, strategic, and creative
design challenges and an understanding of how the Internet transforms
relationships between businesses and their internal organizations, customers,
and business partners. Companies facing technology investment decisions often
need outside technical expertise to recognize viable Internet tools, develop
feasible architectures, and implement strategies. Companies must also be able to
integrate new Internet applications with their existing systems. Finally, a
successful solution requires that the Internet application, particularly the
user interface, be engaging and easy to use.
We believe that few of the existing electronic commerce service providers
have the range of skills required to assist their clients in a coordinated
transformation of the way they use technology and implement Internet solutions.
Accordingly, we believe that organizations are increasingly searching for
professional services firms offering turn-key electronic commerce solutions,
including integrated strategy, technology and creative design, connectivity,
transaction processing, data warehousing, transaction reporting, help desk,
consulting, and training. Furthermore, we believe that organizations will
increasingly look to Internet solutions providers that can leverage industry and
client practices, increase predictability of success for Internet solutions, and
decrease risks associated with implementation by providing low-cost, scalable
solutions with minimal lead-time.
40
<PAGE>
THE NETGATEWAY SOLUTION
IN GENERAL
We have structured the ICC to provide scalable, fully integrated, turn-key
solutions. We develop customized interfaces to connect our clients' Web sites,
whether created and maintained by us or others on behalf of the clients, with
the ICC and our electronic commerce servers. As a result of our HUB and SPOKE
structure, we can offer rapidly deployed, low cost electronic commerce services,
which incorporate the sales and other practices of our clients and their
industries, as well as maintain our clients' prior investment in creating and
maintaining a Web presence.
THE ICC HUB
The ICC consists of hardware and proprietary and licensed software, as well
as related technical services, which are necessary in order to transact
electronic commerce. We have developed the ICC based upon an object-oriented,
modular strategy. As a result, we are able to reuse functional software
components of the ICC across different clients and industries, as well as allow
introduction of new capabilities and services without adversely effecting
existing systems.
The following features are designed to provide more complete electronic
commerce services by overcoming limitations in external systems.
- - INVENTORY MANAGEMENT
- - ORDER STATUS AND HISTORY
- - CUSTOMER SUPPORT FORUMS
- - PURCHASE ACTIVITY REPORTING
- - SECURE, WEB BROWSER BASED SYSTEM
ADMINISTRATION
- - REPORTING
- - UNIVERSAL CLIENT DIRECTORY MANAGEMENT
- - SALES AUTOMATION
- - CUSTOMER SURVEY SYSTEM
- - BUDGET REPORTING
- - CUSTOMER SELF-ADMINISTRATION
- - ORDER MANAGEMENT
- - SYSTEM STATUS MONITORING
- - PRODUCT CATALOG MANAGEMENT
THE INTERFACE SPOKE
We have the capability to rapidly design and deploy proprietary software
interfaces which permit client Web sites, networks, and enterprise resource
planning systems to connect with, receive relevant information from, and provide
relevant information to, the ICC. Data integration between the ICC and the buyer
or seller is managed in the SPOKE. Product catalogs, order information, order
status, customer data, etc. can be transferred between the HUB and the
buyer/seller by means of the SPOKE. Each interface or SPOKE is specific to a
client and industry and contains knowledge about specific products and services
as well as processes and business rules, including
- - CUSTOM PRICING
- - PURCHASING WORKFLOW
- - UNIQUE ORDER HEADER FOR EACH CUSTOMER
- - PRODUCT CONFIGURATION
- - GRAPHICAL INTERFACE
- - SPECIAL REPORTING NEEDS
- - PRODUCT VARIATION RULES
- - WORKFLOW WITH ROUTING AND APPROVALS
All spokes are developed according to a common methodology so that, as
clients in similar industries are added to the ICC, the cost and time of
development is reduced by duplicating previously created modules. We have
developed a substantial library of SPOKES which are available for future use.
Customization, or SPOKE development, for clients can include:
- - WEB SITE INTEGRATION
- - THIRD PARTY AND CUSTOMER DEVELOPED SYSTEMS
- - ORDER MANAGEMENT
- - ACCOUNTING
- - SHIPPING
- - ENTERPRISE RESOURCE PLANNING SYSTEMS
41
<PAGE>
ADVANTAGES
We believe that the following are significant advantages of our electronic
commerce solution over other currently available alternatives:
- Our customers do not invest in hardware, software, and staffing, but
rather connect to our existing Netgateway infrastructure, which we believe
is a highly economic method to obtain and maintain an electronic commerce
presence.
- Clients with existing Web sites can maintain their investment in the
creation of that presence while seamlessly adding electronic commerce
capabilities.
- Because our infrastructure permits scalable electronic commerce solutions,
we can offer incremental services to our clients through the activation of
additional proprietary software in response to client growth or commercial
requirements quickly and cost-effectively.
- Because our proprietary and other software resides only on our servers, we
can offer clients easy access to additional functionality on a test or
temporary basis in order to permit our clients to try new or additional
services with their respective customers on their Web sites, and can
provide real time updates, patches, and fixes to software with no
additional effort by the client.
BUSINESS STRATEGY
Key elements of our strategy are described below.
- IMPLEMENT COST EFFECTIVE SERVICES WITH BROAD APPEAL. We have designed our
operations and business model to focus upon the electronic commerce
services of highest value to our clients. These are services which require
high levels of investment of resources or technical expertise by clients
in the event that these clients were to decide to provide these services
themselves. By offering these services to a number of clients
simultaneously and by creating and utilizing reusable software modules, we
are able to spread the relatively fixed costs associated with the
creation, purchase, or customization of the software, processes,
procedures, or computer hardware over a larger volume of electronic
commerce transactions, permitting us to offer these services to our
clients on a highly cost effective basis.
- LEVERAGE RELATIONSHIPS WITH RESELLERS TO MAXIMIZE GROWTH. We have embraced
a channel strategy for distribution of our Internet storefront services.
We have found that this particular service offering matches well with any
organization that has existing business relationships whereby adding an
electronic commerce solution will strengthen the relationship. Examples of
our resellers include Internet portal companies, telecommunications
companies, Internet service providers, cable television companies, banks,
and computer hardware manufactures. See "Business--Clients and Strategic
Relationships."
- PROVIDE EASY ACCESS TO SCALABLE ELECTRONIC COMMERCE FUNCTIONALITY. We have
designed the ICC and our hardware and software infrastructure to permit
scalable electronic commerce solutions and can offer incremental services
to our clients through the activation of additional proprietary software
which provide additional services and added functionality in response to
client growth or commercial requirements quickly.
- OFFER ADDITIONAL FUNCTIONALITY OF ICC SERVICES. Our HUB and SPOKE approach
constantly generates new features for our ICC clients. For example, as the
SPOKE features become dominant in a particular industry, that feature is
integrated into the HUB to become a new standard feature of the ICC,
benefitting all ICC users in that industry.
- USE OF TECHNOLOGY TO CREATE ELECTRONIC COMMERCE HUBS. We have improved the
attractiveness of our services by creating electronic commerce HUBS in the
form of (1) private label Internet-based "shopping malls", where
electronic commerce sites sponsored by a common reseller or of similar
42
<PAGE>
product offerings are grouped together for convenient retail use by the
public, or (2) secure client extranets.
- INCORPORATE CLIENT AND INDUSTRY PRACTICES AND MAINTAIN CLIENTS' PRIOR
INVESTMENT. We have structured the ICC and our hardware and software
infrastructure, and have developed proprietary software, to permit the
easy interconnection of client Web sites, whether prepared and maintained
by us or others on behalf of our clients, with our electronic commerce
servers. As a result, we can offer electronic commerce services which
incorporate the sales and other practices of our clients and their
industries, as well as maintain the clients' prior investment in creating
and maintaining a Web presence.
- SEEK STRATEGIC ACQUISITIONS AND INVESTMENTS. We intend to seek strategic
acquisitions of, and investments in, businesses and technologies which we
believe will enhance the functionality of our services, operations, and
competitive position. In May 1999, we consummated the acquisition of the
technology of Shopping Planet, an electronic commerce applications
developer, which we believe will enhance our functionality. In exchange
for their technology, we agreed to the following:
- we issued to Shopping Planet 35,000 shares of our common stock; and
- leased the technology, including the right to enhancements, back to
Shopping Planet on a non-transferable basis for nominal consideration.
As a condition to this acquisition, we entered into an employment
agreement with the head developer of the Shopping Planet technology.
See "Risk Factors" and "Use of Proceeds."
SERVICES OFFERED
We offer our electronic commerce services which range, in general, from
simple Internet storefronts to highly complex systems. We currently offer the
following specific services to our clients:
- WEB SITE DEVELOPMENT AND DESIGN; DEVELOPMENT OF ELECTRONIC STOREFRONTS. We
believe that a professionally designed Web site is critical to the success
of business customers desiring to transact electronic commerce. We offer
Web site development, design, and maintenance solutions to our business
customers, including the development and design of the graphical
interfaces and applications necessary to fully integrate each customer's
Web site with its order and payment processing, order confirmation, and
fulfillment centers. Our proprietary software for Web site and electronic
storefront development features its own template system, multiple product
search engines, multiple price sets and catalogues, and support for
multiple currencies. Following this offering, we intend to further develop
and enhance this solution and to aggressively market these services
through our channel marketing strategy.
- INTERNET-BASED "SHOPPING MALL" DEVELOPMENT AND DESIGN. We believe that the
use of Internet-based shopping malls is critical to create an effective
electronic commerce marketplace. Through the creation and use of private
labeled Internet malls, users of our services can take advantage of both
the pre-existing relationships and marketing efforts of the reseller
sponsoring the private labeled mall, thereby increasing traffic to, and
exposure of, their site. In addition, we have developed and feature a
proprietary electronic commerce search engine that searches within each
Internet mall, as well as across all Internet malls served by our ICC. We
believe the use of malls and the availability of our robust electronic
commerce search engine adds substantial value to individual stores and
resellers alike. For our customers not otherwise affiliated with any mall,
we provide access to our own mall as a value-added service.
- TRANSACTION PROCESSING. We offer solutions which capture and transact
customer orders according to the business rules and specific "back office"
needs of the particular client. Our electronic
43
<PAGE>
commerce system solution allows us to receive and process orders and
payments, provide order confirmation and reporting, and organize order
fulfillment. We also have the ability to provide support for electronic
commerce transactions using checks, credit cards, electronic funds
transfers, purchase orders, and other forms of payment. We are currently
providing this capability in conjunction with certain third-party vendors,
including Payment Net in San Jose, California, Authorize Net in Salt Lake
City, Utah, Clear Commerce in Austin, Texas, eCommerce Exchange in Laguna
Hills, California, and Card Services International in Agoura Hills,
California. Following this offering, we plan to pursue our own secured
transaction clearing solutions as well as a strategic alliance or
acquisition of a secured transaction-processing center.
- DATA WAREHOUSING AND TRANSACTION REPORTING. We anticipate that, as our
business continues to grow, we will compile large amounts of transactional
and other data with respect to our clients and their businesses, markets,
customers, and electronic commerce transactions. We have the capability to
automatically generate reports relating to order confirmation, inventory
tracking, fulfillment, transaction details, customer data, market
research, and other sophisticated management reports based on the
transactions facilitated through our hardware and software infrastructure.
Following this offering, we plan to further develop these capabilities.
- CUSTOMER SUPPORT SERVICES. We provide our clients with 24 hour per day and
seven day per week customer service and support through our customer
support staff of six individuals.
- ADVERTISING. We have signed an agreement with 24/7, Inc. to manage
national banner advertising in our Internet-based shopping malls. We share
advertising revenues with the respective mall owner on whose Web site the
advertisement resides.
- CONNECTIVITY SOLUTIONS. In order for business customers to effectively
engage in electronic commerce, they must be connected to the Internet. We
assist our business customers in structuring and obtaining high-speed
Internet connectivity solutions to improve their business-to-business
communication by means of the Internet. We provide these connectivity
solutions to our business customers in conjunction with third party
Internet access providers. Our connectivity solutions also include the
ability to host clients' Web sites and provide clients with security
measures necessary for secure transmissions over the Internet. We support
our hosted Web sites by a connectivity enhancing, high-performance,
high-bandwidth server system.
- CABLECOMMERCE SOLUTIONS. In July 1999, we formed CableCommerce, a new
operating division which will focus on providing electronic commerce
services and solutions to cable television operators. See
"Business--Client and Strategic Relationships."
SALES AND MARKETING
IN GENERAL
We sell and market our services by means of a combination of direct sales
and authorized resellers. We maintain a direct sales force of 11 full-time
employees. We anticipate increasing our sales force substantially following this
offering, including creating a group within our sales force trained to assist
resellers in marketing our products and services. If a client requiring these
more sophisticated services is provided by a Netgateway reseller, we ordinarily
pay a finders fee to the reseller.
For entry level ICC services, such as simple Internet storefronts, we have
developed, and are continuing to develop, a series of channel partners to
distribute these services. Potential resellers include telecommunication
companies, value-added resellers, cable companies, Internet portals, and
Internet service providers. Reseller pricing has generally been dependent upon
volume and commitments from the reseller. We will "private label" the Internet
storefront service and establish private branded Internet-based shopping malls
for resellers in order to provide the resellers with the means to drive traffic
to these storefronts. The storefronts and mall will have a customized "look and
feel" of the reseller. For purposes of branded equity, such as XOOM.com's
Internet-based shopping
44
<PAGE>
mall located at WWW.XOOMMEMBERSTORES.COM, all sites will have the
"STORESONLINE.COM" logo as well as "POWERED BY NETGATEWAY" designation. We will
establish and maintain the mall for the reseller as long as the reseller drives
traffic to the mall by means of their marketing and advertising efforts.
In July 1999, we established our call center in American Fork, Utah. The
center has immediate capacity for 40 telephone salespeople, with future
expansion capabilities to add up to 130 telephone sales stations. The primary
focus of the call center is to produce revenues by means of outbound sales call
campaigns and selling our products and services. We believe that the center will
also produce revenues by performing outbound calling services for our reseller
channel partners charging hourly fees and for other clients requiring inbound or
outbound services by charging a combination of development, activation, and
hourly fees. The center also supports inbound technical questions from the
Company's user base 24 hours per day, seven days per week. The center is
equipped with the latest technology, affording the operators digital
capabilities such as queue control over voice, e-mail, and fax in digital
format, rapid development and deployment of outbound marketing campaigns,
database integration into the outbound queuing system, Web-based monitoring
tools, and drastically reduced costs as compared to other standard telephone
technologies.
45
<PAGE>
PACKAGED SERVICES
While clients can select ICC services and particular features individually,
we generally market our services through the use of packaged services. Below is
a table which summarizes the features of each of our service packages followed
by a detailed description of each package.
<TABLE>
<CAPTION>
PACKAGE THREE
BUSINESS TO
PACKAGE ONE PACKAGE TWO BUSINESS
INTRODUCTORY STORESONLINE.COM ELECTRONIC
FEATURES PACKAGE PACKAGE COMMERCE
- ---------------------------------------------- --------------- ------------------- -----------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Web Account Access............................ - - -
Static Webpages............................... - - -
- -------------------------------------------------------------------------------------------------------
24/7 E-Mail support........................... - - -
Custom Templates.............................. - - -
- -------------------------------------------------------------------------------------------------------
WYSIWYG....................................... - - n/a
24/7 Phone Technical Support.................. - -
- -------------------------------------------------------------------------------------------------------
Shopping Cart................................. - -
Real-Time Credit Card Transactions............ - -
- -------------------------------------------------------------------------------------------------------
Multiple Price-Sets........................... - -
Custom Shipping Rules......................... - -
- -------------------------------------------------------------------------------------------------------
Order Status and Tracking..................... - -
Store Statistical Reporting................... - -
- -------------------------------------------------------------------------------------------------------
Unique Domain Name/Virtual Hosting............ - -
Custom Forms.................................. - -
- -------------------------------------------------------------------------------------------------------
Import and Export Data........................ - -
Search and Browse Functionality............... - -
- -------------------------------------------------------------------------------------------------------
E-Mail Confirmation to Customers.............. - -
Featured Products and Sale Items.............. - -
- -------------------------------------------------------------------------------------------------------
Printable Coupons............................. - -
Unlimited Products and Categories............. - -
- -------------------------------------------------------------------------------------------------------
Inventory Tracking............................ - -
Integration with Existing Web Site............ - -
- -------------------------------------------------------------------------------------------------------
Custom Price Discount Methods................. - -
Multimedia Support............................ -
- -------------------------------------------------------------------------------------------------------
Unique Catalog Per Customer................... -
Assigned Access Rights........................ -
- -------------------------------------------------------------------------------------------------------
Multiple Order Methods........................ -
Integration with External System.............. -
</TABLE>
SERVICE PACKAGE ONE -- INTRODUCTORY PACKAGE
Clients can design a professional three page Web site, choosing from a
selection of over 25 templates. This entry level service is available through
our resellers as an introduction to electronic commerce, and the sites are
static in nature. While we do not offer free help desk support or credit card
processing with this package, e-mail based customer support is available.
46
<PAGE>
SERVICE PACKAGE TWO--STORESONLINE.COM PACKAGE
This package is sold by means of authorized Netgateway resellers and permits
clients to have a fully functional electronic commerce store quickly and easily.
This service requires no investment in hardware or software and clients can
quickly and dynamically generate sales.
SERVICE PACKAGE THREE--BUSINESS TO BUSINESS ELECTRONIC COMMERCE
For businesses that need more robust electronic commerce services for
business to business applications, the Netgateway ICC offers additional highly
customized features, including those described under the heading "Business--The
Netgateway Solution--The ICC Hub," designed to meet the requirements of our
clients in an extranet setting. These features are sold directly by our sales
professionals as each business to business opportunity involves different uses
of these features.
CLIENTS AND STRATEGIC RELATIONSHIPS
We view our clients as both the sponsor or owner of the electronic commerce
site in question and our resellers. We are currently processing electronic
commerce transactions for over 1,600 clients. The clients are geographically
dispersed and represent a mix of businesses.
We require each client using our services to enter into a standard
subscription agreement. Each subscription agreement provides that the client
pays us both monthly subscription fees for the services requested and specified
fees per transaction. These contracts are terminable by the client upon 30 days
prior written notice. In addition, we enter into agreements with its resellers.
These agreements vary significantly by reseller based on the levels of service
the reseller will distribute and other factors.
The following are descriptions of a number of the contracts into which we
have recently entered:
MEDIAONE. In July 1999, we entered into a strategic relationship with
MediaOne, a leading cable television operator, under which we will design,
develop, host, and manage Internet-based shopping malls in each of MediaOne's
markets. These markets currently consist of more than five million households.
These shopping malls will be branded with the MediaOne name, brand, and image,
will feature businesses local to each market, and will offer additional online
services, such as classified advertisements, local community events calendars,
and coupons. MediaOne has agreed to contribute commercial advertising time on
their cable systems in order to promote these malls. As a term of this
relationship, MediaOne acquired 50,000 shares of our common stock and warrants,
exercisable for up to an aggregate of 200,000 shares of our common stock, which
vests in four installments upon the satisfaction of milestones relating to the
scope of the launch of these Internet-based shopping malls. See
"Business--Clients and Strategic Relationships."
CABLEONE. In August 1999, we entered into a cable reseller and mall
agreement with CableOne, a large cable television operator, under which we will
design and develop an Internet-based shopping mall, to be branded with the
CableOne name, brand, and image, and will offer our storefront creation and
maintenance services to CableOne's subscribers. We will also be responsible for
marketing support, including development of mall content, training of CableOne
sales people, and production of advertising to promote their services. CableOne
will promote this mall with a minimum of 400 cablecasts per broadcast month in
each broadcast market where the mall services are offered.
WIRELESS ONE. In June 1999, we entered into a reseller and mall agreement
with Wireless One, Inc. under which we will design and develop an Internet-based
shopping mall, to be branded with the Wireless One name, brand, and image, and
will offer our storefront creation and maintenance services to Wireless One's
subscribers. We will also be responsible for marketing support, including
development of mall content, training of Wireless One sales people, development
of Wireless One branded collateral material and periodic distribution and
updating of advertising spots to promote their
47
<PAGE>
services. Wireless One will promote this mall with a total of 1,000 30-second
spots every month jointly developed by us and Wireless One in all systems in
which it is able to provide advertising.
FRONTIERVISION MEDIA SERVICES. In July 1999, we entered into a reseller and
mall agreement with Frontiervision Media Services, a provider of cable
television programming services, pursuant to which we will design and develop an
Internet-based shopping mall, to be branded with the Frontiervision name, brand
and image, and will offer our storefront creation and maintenance services to
Frontiervision's subscribers. We will also be responsible for marketing support,
including development of mall content, training of Frontiervision sales people,
and production of advertising spots to promote their services. Frontiervision
will promote this mall with a minimum of 1,000 cablecasts per broadcast month in
each broadcast market where the mall services are offered.
XOOM.COM. In March 1999, we entered into an agreement with XOOM.com (NMS:
XMCM), an electronic commerce Web portal with over 7.8 million members. Under
the terms of the agreement:
- we are the sole provider of a private labeled version of XOOM.com's
products and services which permit its members to create and maintain
storefronts on the Web through XOOM.com;
- we developed XOOM.com's Internet-based shopping mall located at
WWW.XOOMMEMBERSTORES.COM;
- we are the sole provider of electronic commerce processing services to
XOOM.com's electronic commerce customers; and
- we will utilize XOOM.com as a Netgateway reseller to provide electronic
commerce solutions and services to its member companies.
BUYSELLBID.COM In August 1999, we entered into a distributor mall and
reseller agreement with BuySellBid.com under which we will design and develop
Internet-based shopping malls for BuySellBid.com, which will in turn resell
and/or sublicense these Internet-based shopping mall packages, custom-branded,
to other resellers, or alternatively brand any such Internet-based mall with the
BuySellBid.com name, brand, and image, and offer our storefront creation and
maintenance services to its own subscribers. Under this agreement, we will be
responsible for marketing support, including development of mall content, and
training of BuySellBid.com sales people.
B2BSTORES.COM INC. In July 1999, we entered into an electronic commerce
services agreement with B2BStores.com Inc., a catalogue aggregator and
procurement company, under which we will develop, manage, and service an
Internet commerce site for B2BStores.com which will use the Internet commerce
site to offer and sell goods and services to businesses.
CB RICHARD ELLIS. In March 1999, we entered into an electronic commerce
services agreement with CB Richard Ellis (NYSE: CBG), one of the world's largest
building management and real estate services companies with over 12,000
properties under management and over $1 billion in revenue during 1998. Under
this agreement, we have been engaged to develop, manage, and service CB Richard
Ellis' Internet-based shopping mall and client extranet. This Web site is
designed to permit CB Richard Ellis personnel to conduct all of their corporate
materials purchasing, including computers and building and maintenance supplies,
and all global facilities management by means of the Internet. In addition, CB
Richard Ellis will offer to the tenants in the buildings they manage volume
purchasing services on the Internet for a variety of office products and
supplies.
RELIANT INNOVATIONS. In June 1999, we entered into an electronic commerce
services agreement with Reliant Innovations under which we will develop an
electronic commerce site that will enable Reliant Innovations to sell computer
products to clients who are members of specific associations with which Reliant
Innovations has formed a partnership.
48
<PAGE>
BERGEN BRUNSWIG DRUG COMPANY. In October 1999, we entered into an internet
services agreement with Bergen Brunswig Drug Company, a leading supplier of
pharmaceuticals, medical-surgical supplies, and specialty healthcare products,
under which we will design, develop, manage, and service an Internet-based
shopping mall to be branded with the Bergen Brunswig name, brand, and image and
which will contain on-line storefronts for affiliated local pharmacies. We will
also be responsible for training of Bergen Brunswig personnel.
OTHER RESELLERS. We have also recently entered into reseller agreements,
under which the reseller offers our services to their customers, with FedPage
(WWW.FEDPAGE.COM), a division of Federal Business Council, Inc., the industry
leader in the production of on site federal technology shows, Ayrix
Technologies, OKC Webshopper, Country Wide Net, Hill Country Network, Encom
Industries, Epicycle Business Solutions, Integrated Systems Solutions, Found.com
Inc., Card Service International and O.T.I. Cable Advertising.
Initial customer service and support for our customers will be provided
through our customer support staff of ten individuals that provides telephone
customer service and support 24 hours a day, 365 days a year. We can also
provide customers with access to information and customer support services by
means of the Internet.
RESEARCH AND DEVELOPMENT
Since June 1998, we have conducted extensive research and development with
respect to our technology. During the year ended June 30, 1999, we invested
approximately $499,000 in the research and development of our technology. Our
research and development efforts have:
- emphasized the development of advanced technology and new services and the
enhancement and refinement of existing services in response to rapidly
changing client specifications and industry needs, and
- included introducing support for evolving communications methodologies and
protocols, software methodologies and protocols, and computer hardware
technologies, as well as improving functionality, flexibility, ease of use
and enhancing the quality of documentation, training materials, and
technical support tools.
We intend to conduct additional research and development to, among other
things, further our strategy of developing cost effective services with broad
appeal, to provide easy access to scalable electronic commerce services, and to
offer additional functionality of our ICC services. At June 30, 1999, our
research and development activities utilized 22 computer programmers and
technicians.
COMPETITION
The electronic commerce services market is intensely competitive and
characterized by rapidly evolving technologies. We currently face substantial
competition in all of our product and service lines. We expect such competition
to continue and to increase in the future, as new competitors enter the Internet
market and existing competitors expand their product and service offerings. Our
target market is rapidly evolving and is subject to continuous technological
change. As a result, our competitors may be better positioned to address these
developments or may react more favorably to these changes, which could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. We compete on the basis of a number of factors, including
the attractiveness of the electronic commerce services offered, the breadth and
quality of these services, creative design, engineering expertise, pricing,
technological innovation, and understanding clients' strategies and needs.
A number of these factors are beyond our control. Existing or future
competitors may develop or offer electronic commerce services that provide
significant technological, creative, performance, price, or other advantages
over the services offered by us.
49
<PAGE>
Our current and potential competitors include:
- Internet integrators and Web presence providers, such as IBM, iXL, Organic
Online, Proxicom, and USW;
- large information technology consulting service providers, such as
Andersen Consulting, Cambridge Technology Partners, and EDS;
- Internet commerce providers, such as Yahoo! Stores, Ariba, and
VerticalNet;
- software development companies, such as Microsoft, Broadvision, Open
Market, and InterShop;
- telecommunications companies, such as AT&T and MCI;
- application service providers, such as US Internetworking and the recently
announced EDS/SAP relationships, and
- Internet and online service providers, such as America Online, Lycos, and
Earthlink.
Although most of these types of competitors to date have not offered a full
range of Internet professional services, many are currently offering these
services or have announced their intention to do so. These competitors at any
time could elect to focus additional resources in our target markets, which
could materially adversely affect our business, prospects, financial condition,
and results of operations. Many of our current and potential competitors have
longer operating histories, larger customer bases, longer relationships with
clients, and significantly greater financial, technical, marketing, and public
relations resources than we do. Competitors that have established relationships
with large companies, but have limited expertise in providing Internet
solutions, may nonetheless be able to successfully use their client
relationships to enter our target market or prevent our penetration into their
client accounts.
Additionally, in pursuing acquisition opportunities, we may compete with
other companies with similar growth strategies, certain of which competitors may
be larger and have greater financial and other resources than we have.
Competition for these acquisition targets likely could also result in increased
prices of acquisition targets and a diminished pool of companies available for
acquisition.
There are relatively low barriers to entry into our business. We have
limited proprietary technology that would preclude or inhibit competitors from
entering the electronic commerce services market. Therefore, we must rely on the
skill of our personnel and the quality of our client service. The costs to
develop and provide electronic commerce services are low. Therefore, we expect
that we will continually face additional competition from new entrants into the
market in the future, and we are subject to the risk that our employees may
leave us and start competing businesses. The emergence of these enterprises
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
INTELLECTUAL PROPERTY
Our success is dependent upon our proprietary technology and other
intellectual property and on our ability to protect our proprietary technology
and other intellectual property rights. In addition, we must conduct our
operations without infringing on the proprietary rights of third parties. We
also intend to rely upon unpatented trade secrets and the know-how and expertise
of our employees. To protect our proprietary technology and other intellectual
property, we rely primarily on a combination of the protections provided by
applicable copyright, trademark, and trade secret laws as well as on
confidentiality procedures and licensing arrangements. We have one patent
application pending with the United States Patent and Trademark Office for our
electronic commerce system and method. We also have trademark applications
pending with the United States Patent and Trademark Office for NETGATEWAY,
NETGATEWAY ICC, NETGATEWAY INTERNET COMMERCE CENTER, NETGATEWAY "WHERE BUSINESS
DOES
50
<PAGE>
BUSINESS ON THE INTERNET," STORESONLINE, STORESONLINE.COM, STORESONLINE.COM
"WHERE MERCHANTS DO BUSINESS ON THE INTERNET", NETGATEWAY KNOWLEDGE AND COMMERCE
OF THE DIGITAL AGE, NETGATEWAY, THE POWER OF ORGANIZED INTERNET COMMERCE,
CABLECOMMERCE and two NETGATEWAY logos. Although we believe that we have taken
appropriate steps to protect our unpatented proprietary rights, including
requiring that our employees and third parties who are granted access to our
proprietary technology enter into confidentiality agreements with us, there can
be no assurance that these measures will be sufficient to protect our rights
against third parties. Others may independently develop or otherwise acquire
unpatented technologies or products similar or superior to ours.
We license from third parties certain software and Internet tools that we
include in our services and products. If any of these licenses were terminated,
we could be required to seek licenses for similar software and Internet tools
from other third parties or develop these tools internally. We may not be able
to obtain such licenses or develop such tools in a timely fashion, on acceptable
terms, or at all. Companies participating in the software and Internet
technology industries are frequently involved in disputes relating to
intellectual property. We may in the future be required to defend our
intellectual property rights against infringement, duplication, discovery, and
misappropriation by third parties or to defend against third-party claims of
infringement. Likewise, disputes may arise in the future with respect to
ownership of technology developed by employees who were previously employed by
other companies. Any such litigation or disputes could result in substantial
costs to, and a diversion of effort by, us. An adverse determination could
subject us to significant liabilities to third parties, require us to seek
licenses from, or pay royalties to, third parties, or require us to develop
appropriate alternative technology. Some or all of these licenses may not be
available to us on acceptable terms or at all, and we may be unable to develop
alternate technology at an acceptable price or at all. Any of these events could
have a material adverse effect on our business, prospects, financial condition,
and results of operations.
EMPLOYEES
As of the date of this prospectus, we had 101 full-time employees:
35 engaged in sales and marketing, 39 engaged in the development of our
electronic commerce solutions, six in customer support, and 21 in general
administration and finance. We intend to hire additional key personnel in the
near future.
FACILITIES
Our headquarters are located at 300 Oceangate, Suite 500, Long Beach,
California 90802. These premises, which occupy 9,100 square feet, are subject to
a lease between Netgateway and an unaffiliated third party. The lease expires on
July 9, 2001 and our monthly payments under this lease are currently
approximately $10,000. We believe that, in the event alternative or larger
offices are required, such space is available at competitive rates.
To house and support the ICC, Netgateway maintains its equipment in Exodus'
state-of-the-art data center, which provides a 24 hour per day, seven day per
week accessible operating environment with multiple redundant high-speed
connections to the Internet backbone. This data center features raised floors,
HVAC temperature control systems, and seismically braced racks. All systems are
connected to high capacity uninterruptable power supplies, which are in turn
backed by a high output diesel generator. Main power is provided to the facility
through connectivity to two separate power grids. Non-stop connectivity is
provided through multiple fiber egresses using different bandwidth providers.
Facility security includes 24 hour per day, seven day per week keycard access,
video monitors, motion sensors, and staff members on-site.
51
<PAGE>
GOVERNMENTAL REGULATION
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to, or commence
on, the Internet. However, due to the increasing popularity and use of the
Internet, it is possible that various laws and regulations may be adopted with
respect to the Internet, covering issues such as taxation, user privacy,
pricing, and characteristics and quality of products and services. In 1998, the
United States Congress established the Advisory Committee on Electronic Commerce
which is charged with investigating, and making recommendations to Congress
regarding, the taxation of sales by means of the Internet. The adoption of any
such laws or regulations upon the recommendation of this Advisory Committee or
otherwise may decrease the growth of the Internet, which could in turn decrease
the demand for our products or services, our cost of doing business or otherwise
have an adverse effect on our business, prospects, financial condition, or
results of operations. Moreover, the applicability to the Internet of existing
laws governing issues, such as property ownership, libel, and personal privacy
is uncertain. Future federal or state legislation or regulation could have a
material adverse effect on our business, prospects, financial condition, and
results of operations.
LEGAL MATTERS
We are not a party to any material litigation or legal proceeding relating
to our products and services or otherwise. Except as described below, we are not
aware of any material legal proceedings threatened against us.
In January 1999, we entered into a binding letter of intent to acquire the
assets and technology of iShopper, an Internet-based shopping mall. The purchase
price in the letter of intent was (1) $50,000, (2) 50,000 shares of our common
stock upon closing, and (3) up to an additional 100,000 shares of our common
stock based upon meeting designated financial milestones. The letter of intent
included a number of conditions to our obligation to consummate the acquisition,
including:
- our satisfaction with our due diligence review of iShopper; and
- that iShopper's technology permitted the portability of the stores in
their mall to our technology.
In June 1999, we terminated this letter of intent because these conditions were
not satisfied. iShopper contacted us contesting this termination and alleging
bad faith. We afforded iShopper the opportunity to demonstrate that these
conditions can be met. We were later informed that iShopper sold its assets to a
third party. iShopper has claimed they have been damaged by us. To date, no
litigation has been commenced.
52
<PAGE>
MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Netgateway, their ages, and their
positions held with Netgateway are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ----------- ----------------------------------------------
<S> <C> <C>
Keith D. Freadhoff..................... 40 Chairman of the Board
Roy W. Camblin III..................... 52 Chief Executive Officer, Chief Information
Officer, and Director Nominee
Donald M. Corliss, Jr. ................ 49 President and Director
David Bassett-Parkins.................. 38 Chief Financial Officer, Chief Operating
Officer, and Director
Hanh Ngo............................... 28 Executive Vice President--Operations
John M. Wendel......................... 42 Senior Vice President
Craig Gatarz........................... 37 General Counsel
Scott Beebe............................ 47 Director
William Brock.......................... 49 Director
Ronald Spire........................... 49 Director
James Demetriades...................... 37 Director Nominee
John Dillon............................ 50 Director Nominee
</TABLE>
The following is certain summary information with respect to the directors,
director-nominee, and executive officers of Netgateway.
KEITH D. FREADHOFF, has served as Chairman of the Board of Directors of
Netgateway since our inception and has also served as Chief Executive Officer of
Netgateway since our inception through September 1999. From November 1994 to
November 1997, Mr. Freadhoff was the co-founder, Chairman of the Board of
Directors, and Chief Executive Officer of Prosoft I-Net Solutions, a public
company engaged in development and provision of software and Internet training
solutions. From November 1993 to November 1994, Mr. Freadhoff has served as the
Executive Director of Career Planning Center, a community based organization
serving disadvantage populations with job training and social services. From
1993 to 1994, he also served as President of the Focus Institute, a California
based Microsoft Authorized Training and Education Center. From 1991 to 1992,
Mr. Freadhoff served as a Vice President of Frojen Advertising, an advertising
and marketing firm. From 1987 to 1991, Mr. Freadhoff founded and served as
President of Oasis Corporate Education and Training, a customized training
company that developed courseware for manufacturing, financial, service, and
public organizations. Mr. Freadhoff completed graduate level work at the
University of Southern California and earned his undergraduate degree at the
University of Nebraska.
ROY W. CAMBLIN III, has served as Chief Executive Officer of Netgateway
commencing on October 1, 1999. Mr. Camblin has also served as Chief Information
Officer of Netgateway since July 1999. Prior to joining Netgateway, from May
1998 until July 1999, Mr. Camblin was the Chief Information Officer and an
Executive Vice President of CB Richard Ellis. From January 1996 to April 1998,
Mr. Camblin was the Head of Global Operations and Technology and a Vice
President at Citibank. From July 1993 to December 1995, Mr. Camblin was the
Chief Information Officer and Senior Vice President of Oracle Corporation.
DONALD M. CORLISS, JR., joined Netgateway in January 1998 and has served as
the President and a Director of Netgateway since March 1998. From 1993 to
June 1998, Mr. Corliss was an independent investor and owned, developed, and
served in senior management positions with several business and development
ventures. From July 1993 through June 1998, Mr. Corliss served as a vice
president and a
53
<PAGE>
director of Westover Hills Development, Inc., a real estate development company.
From August 1993 through June 1998, Mr. Corliss served as a vice president and a
director of the general partner of Brentwood Development, a residential real
estate development company, which was charged with management of the development
projects undertaken by the partnership. From August 1994 through March 1998,
Mr. Corliss served as a consultant and was a founder of Ice Specialty
Entertainment, a developer of ice arena complexes, which was charged with the
structuring and negotiation of the business and projects undertaken by ICE
Specialty Entertainment. From June 1995 to date, Mr. Corliss served as a
director and secretary of SHH Properties, Inc., a real estate investment
company. From 1996 to June 1998, Mr. Corliss served as a vice president and a
director of, Brentwood Development III, Inc., a real estate development company,
which was one of two corporate general partners of Inglehave Farm L.P. From 1997
through May 1998, Mr. Corliss served as a vice president and a director of
Executive Property Management Services, Inc. a provider of executive management
services relating to real estate development. As co-founder in many of these
projects, responsibilities included the operation, management, structuring, and
implementation of business strategies and plans, as well as the development and
implementation of the general business and accounting systems necessary for such
business operations. From 1977 to 1993, Mr. Corliss was engaged in private law
practice. Mr. Corliss earned a LLM in Taxation from New York University, his
Juris Doctorate degree from the University of Santa Clara, and a Bachelor of
Arts degree from the University of California at Santa Barbara. Of the ventures
of Mr. Corliss, two real estate development ventures, Westover Hills
Development, Inc. and Inglehame Farms L.P. sought protection from creditors
pursuant to Chapter 11 of the United States Bankruptcy Code in 1997 and 1998,
respectively. Westover has since emerged from Chapter 11 and has commenced
operations.
DAVID BASSETT-PARKINS, has served as Chief Financial Officer, Chief
Operating Officer, and a Director of Netgateway since our inception in
March 1998. From February 1992 to May 1998, Mr. Bassett-Parkins held various
senior management positions at Wedbush Morgan Securities, a privately held
regional securities firm, including Vice President of Management Information
Systems, Vice President of Customer Services, and Vice President of Client
Banking Services. From 1988 to February 1992, Mr. Bassett-Parkins served as a
Director of Automation for ISD, a privately held Interior Architecture firm
based in Chicago. From 1985 to 1988, Mr. Bassett-Parkins was managing partner
for Architectural CADD Systems, a privately held software developer and
reseller. Mr. Bassett-Parkins holds a B.S. in Management from California State
Polytechnic University, Pomona and an Executive Education Certificate from
University of California at Los Angeles.
HANH NGO, has served as Executive Vice President--Operations of Netgateway
since June 1998. Prior to joining Netgateway, Ms. Ngo held the position in
Financial Planning and Analysis as a Financial Analyst for Nissan Motor
Corporation from June 1997 to June 1998. From March 1992 to June 1997, Ms. Ngo
worked in various capacities at Wedbush Morgan Securities, a privately held
regional securities firm, including as a business analyst for the vice president
and as a client banking officer and licensed stockbroker. Ms. Ngo holds a M.B.A.
in Finance from California State University, Northridge, and a B.A. in Economics
from University of California, Irvine.
JOHN M. WENDEL, has served as Senior Vice President since June 1999.
Mr. Wendel directs marketing, sales and call center support operations.
Mr. Wendel served as the Executive Vice President and General Manager of Sento
Training, a training solutions and information technology support solutions
company from June 1998 to June 1999. Mr. Wendel served as Executive Vice
President from January 1996 to June 1998 of Interactive Teleservices Corporation
and as Senior Worldwide Director of Sykes Enterprises from 1994 to
January 1996. Mr. Wendel has consulted with and/or published help desk
strategies for such organizations as SSI (Matrixx), Stream, MicroAge, and
Unisys. Mr. Wendel worked at Microsoft where he directed National Accounts and
Strategies.
CRAIG GATARZ, has served as General Counsel of Netgateway since April 1999.
From 1989 until April 1999, Mr. Gatarz was an attorney at Jones, Day, Reavis &
Pogue, a law firm, and specialized in
54
<PAGE>
corporate law, particularly corporate restructurings and asset-based lending
transactions. Mr. Gatarz received his law degree in 1987 from the University of
Virginia School of Law and is admitted to practice in New York, New Jersey, and
California. Mr. Gatarz serves on the board of directors of BBMG Entertainment,
Inc., a California-based film production company.
SCOTT BEEBE, has served as a Director of Netgateway since June 1998. From
April 1987 through June 1998, Mr. Beebe served as the managing partner of Steps,
an investment and consulting firm specializing in high tech growth companies.
Mr. Beebe was a registered representative in the securities industry from 1982
through 1998. Mr. Beebe graduated from the University of California at Berkeley
in 1973.
WILLIAM BROCK has served as a Director of Netgateway since July 1999. Since
May 1999, Mr. Brock has served as the President and Chief Operating Officer of
Marketplace Technologies, Inc., a corporate finance electronic commerce company.
From September 1996 to April 1999, Mr. Brock served as vice president and Head
of the Structured Note Group in the Fixed Income Division of Salomon Smith
Barney. From December 1994 to August 1996, Mr. Brock served as Managing Director
of Blizzard Capital Markets, a leveraged buyout company. From 1987 to November
1994, Mr. Brock served as Vice President and Co-Head of Medium Term Notes at
Goldman, Sachs & Co. From 1980 to 1987, Mr. Brock served as Vice President,
Short Term Debt at The First Boston Corporation. Since April 1996, Mr. Brock has
served as a Director and owner of Middleton's, a mill working company.
RONALD SPIRE has served as a Director of Netgateway from September 1998 to
December 1998 and since April 1999. Since September 1989, Mr. Spire has been
retired. From June 1984 to September 1989, Mr. Spire was the co-founder and an
executive of PCI Group, Inc., a subcontractor for aerospace manufacturers. From
December 1981 to June 1984, Mr. Spire was a partner with Wolfgang Puck in
Chinois on Main, Inc. and other restaurants in the Los Angeles area. Mr. Spire
earned his Juris Doctorate degree from Southwestern University School of Law,
and his Bachelor or Arts degree from the University of California at Los
Angeles.
DIRECTOR NOMINEES
The following individuals are nominees to our Board of Directors and will be
appointed as a Director upon the closing of this offering.
ROY W. CAMBLIN III. See "Management--Our Directors and Executive Officers."
JAMES DEMETRIADES. In 1991, Mr. Demetriades formed Software Technologies
Corporation, a provider of solutions for integrating applications, databases and
legacy systems, in real-time and batch, across the entire enterprise. He has
served as Chairman, Chief Executive Officer and President of Software
Technologies Corporation. Mr. Demetriades graduated from Loyola Marymount in
1985 with majors in Computer Science and Economics and a minor in Business.
JOHN DILLON. In September 1999, Mr. Dillon joined Salesforce.com, a second
generation Internet ASP start-up company focused on business application
services, as President and Chief Executive Officer. Mr. Dillon served as the
interim President and Chief Executive Officer of Perfecto Technologies, a
start-up company delivering products for insuring Internet application security
from May 1999 to September 1999. Mr. Dillon served as President and Chief
Executive Officer for Hyperion Solutions, the global company formed through the
merger of Arbor Software and Hyperion Software from May 1998 to May 1999. From
December 1993 through May 1998, Mr. Dillon worked at Arbor Software, first as
vice president of sales and then as President and Chief Executive Officer. Mr.
Dillon received a Bachelor of Science degree in engineering from the United
States Naval Academy at Annapolis and an MBA from Golden Gate University. He
served for five years on active duty in the United States Navy nuclear submarine
service and retired with the rank of Commander from the Naval Reserve.
55
<PAGE>
ELECTION OF OFFICERS
Officers are elected annually by the board of directors and hold office at
the discretion of the board of directors. There are no family relationships
among our directors and executive officers.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During our fiscal year ended June 30, 1999, our Board of Directors held one
meeting and took action an additional 22 times by written consent.
In September 1998, the board of directors created a compensation committee,
which will, upon the closing of the offering, be comprised of Messrs. Brock,
Beebe, and Spire. The compensation committee has (1) full power and authority to
interpret the provisions of, and supervise the administration of, our stock
option plans and (2) the authority to review all of our compensation matters.
In April 1999, the board of directors created an audit committee, which is
currently comprised of Messrs. Corliss, Brock, and Spire. The audit committee is
responsible for reviewing the results of the audit engagement with the
independent auditors; reviewing the adequacy, scope, and results of the internal
accounting controls and procedures; reviewing the degree of independence of the
auditors; reviewing the auditors' fees; and recommending the engagement of
auditors to the full board of directors.
EXECUTIVE COMPENSATION
None of our executive officers received cash compensation during the period
from our inception on March 4, 1998 to June 30, 1998.
56
<PAGE>
The following table sets forth the compensation earned during the fiscal
year ended June 30, 1999, by our Chief Executive Officer and our six other most
highly compensated executive officers for services rendered in all capacities
for that fiscal year.
SUMMARY COMPENSATION TABLE FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARD
------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS(1) OPTIONS(#)
- -------------------------------- ---------- --------- --------------- -------------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff, ............
Chairman of the Board of
Directors $ 100,625 $ 57,500 $ 3,200,000(2) 0(2)
Roy W. Camblin III .............
Chief Executive Officer,
Chief Information Officer,
and Director-Nominee 0 0 0 0
Donald M. Corliss, Jr. .........
President and Director 96,250 50,000 3,200,000(3) 0(3)
David Bassett-Parkins ..........
Chief Financial Officer,
Chief Operating Officer,
And Director 87,500 50,000 3,200,000(4) 0(4)
Hahn Ngo .......................
Executive Vice
President--Operations 75,000 25,000 0 75,000(5)
John M. Wendel .................
Senior Vice President 10,833 0 0 0
Craig Gatarz ...................
General Counsel 30,000 7,500 0 21,703(6)
</TABLE>
- ------------------------
(1) Subsequent to June 30, 1999, we terminated performance-based stock options
exercisable for an aggregate of 780,000 shares of common stock and other
stock options exercisable for an aggregate 1,200,000 shares of common stock
granted to Messrs. Freadhoff, Corliss, and Bassett-Parkins and issued in
lieu of these options restricted stock awards of an aggregate of 1,200,000
shares of common. Subsequent to June 30, 1999, we terminated
performance-based stock options exercisable for an aggregate of 200,000
shares of common stock and other stock options exercisable for an aggregate
of 116,667 shares of common stock granted to Ms. Ngo.
(2) During the year ended June 30, 1999, Mr. Freadhoff earned
performance-based stock options exercisable for an aggregate of 69,000
shares of common stock and other options exercisable for an aggregate of
200,000 shares of common stock. Subsequent to June 30, 1999, all performance
and other options granted to Mr. Freadhoff, including the options referenced
in the preceding sentence, were terminated. In lieu of these options, Mr.
Freadhoff received a restricted stock award of 400,000 shares of common
stock.
(3) During the year ended June 30, 1999, Mr. Corliss earned performance-based
stock options exercisable for an aggregate of 64,000 shares of common stock
and other options exercisable for an aggregate of 200,000 shares of common
stock. Subsequent to June 30, 1999, all performance and
57
<PAGE>
other options granted to Mr. Corliss, including the options referenced in
the preceding sentence, were terminated. In lieu of these options, Mr.
Corliss received a restricted stock award of 400,000 shares of common stock.
(4) During the year ended June 30, 1999, Mr. Bassett-Parkins earned
performance-based stock options exercisable for an aggregate of 60,000
shares of common stock and other options exercisable for an aggregate of
200,000 shares of common stock. Subsequent to June 30, 1999, all performance
and other options granted to Mr. Bassett-Parkins, including the options
referenced in the preceding sentence, were terminated. In lieu of these
options, Mr. Bassett-Parkins received a restricted stock award of 400,000
shares of common stock.
(5) During the year ended June 30, 1999, Ms. Ngo earned performance-based
stock options exercisable for an aggregate of 50,000 shares of common stock
and other options exercisable for an aggregate of 133,333 shares of common
stock. Subsequent to June 30, 1999, all performance options granted to Ms.
Ngo, including the performance options referenced in the preceding sentence,
were terminated and all other options awarded to Ms. Ngo were reduced so as
to be exercisable for an aggregate of 150,000 shares of common stock.
(6) Subsequent to June 30, 1999, we amended performance-based stock options
exercisable for an aggregate of 150,000 shares of common stock granted to
Mr. Gatarz so as to provide that these warrants would vest over a period of
two years and not as a result of the satisfaction of performance milestones.
As a result of this amendment, of such options, options exercisable for an
aggregate of 21,703 shares of common stock were deemed to have vested by
June 30, 1999.
For further information with respect to the employment agreements of these
individuals, see "Management--Employment Agreements."
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the fiscal
year ended June 30, 1999 to our Chief Executive Officer and our six other most
highly compensated executive officers. The assumed 5% and 10% rates of stock
price appreciation are provided in accordance with rules of the Commission and
do not represent our estimate or projection of our common stock price. Actual
gains, if any, on stock option exercises are dependent on the future performance
of our common stock, overall market conditions, and the option holders'
continued employment through the vesting period. Unless the market price of our
common stock appreciates over the option term, no value will be realized from
the option grants made to these executive officers. The potential realizable
values shown in the table are calculated by assuming that the estimated fair
market value of our common stock on the date of grant increases by 5% and 10%,
respectively, during each year of the option term. The fair market value of our
common stock was determined on the basis of the closing sales price of our
common stock on June 30, 1999. Each of the options has a ten-year term. However,
the options will
58
<PAGE>
terminate earlier if the optionee ceases service with us unless the option is an
employee terminated without cause and certain instances in cases of changes in
control of Netgateway.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
RATES OF
STOCK
INDIVIDUAL GRANTS PRICE
---------------------------- APPRECIATION
NUMBER OF PERCENT OF FOR
SECURITIES TOTAL OPTIONS OPTION
UNDERLYING GRANTED TO TERM($)
OPTIONS EMPLOYEES IN EXERCISE OR CLOSING ---------
NAME GRANTED(#) FISCAL YEAR(6) BASE PRICE($) EXPIRATION DATE SALE PRICE($) 5%
- ---------------------------- ----------- --------------- ----------------- ----------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Freadhoff ......... 276,000(1) 7.7 2.50 December 15, 2008 4.87 1,499,430
400,000(1) 11.1 4.87 December 15, 2008 4.87 1,225,087
Roy W. Camblin III (2) ..... -- -- -- -- -- --
Donald M. Corliss, Jr. ..... 264,000(3) 7.3 2.50 December 15, 2008 4.87 1,434,237
400,000(3) 11.1 4.87 December 15, 2008 4.87 1,225,087
David Bassett-Parkins ...... 240,000(4) 6.7 2.50 December 15, 2008 4.87 1,303,852
400,000(4) 11.1 4.87 December 15, 2008 4.87 1,225,087
Hahn Ngo ................... 200,000(5) 5.6 2.50 December 15, 2008 4.87 1,086,543
266,667(5) 7.4 4.87 December 15, 2008 4.87 816,726
John M. Wendel ............. -- -- -- -- -- --
Craig Gatarz ............... 161,812 4.5 6.50 April 4, 2009 12.88 2,343,064
<CAPTION>
NAME 10% 0%(6)
- ---------------------------- --------- ---------
<S> <C> <C>
Keith D. Freadhoff ......... 2,796,301 1,262,560
3,104,610 --
Roy W. Camblin III (2) ..... -- --
Donald M. Corliss, Jr. ..... 2,674,723 1,207,666
3,104,610 --
David Bassett-Parkins ...... 2,431,566 --
3,104,610 --
Hahn Ngo ................... 2,026,305 914,898
2,069,743 --
John M. Wendel ............. -- --
Craig Gatarz ............... 4,353,941 1,958,918
</TABLE>
- ----------------------------------
* Less than one percent.
(1) Subsequent to June 30, 1999, all of these options granted to Mr. Freadhoff
were terminated.
(2) Mr. Camblin commenced his employment with us in August 1999.
(3) Subsequent to June 30, 1999, all of these options granted to Mr. Corliss
were terminated
(4) Subsequent to June 30, 1999, all of these options granted to Mr.
Bassett-Parkins were terminated.
(5) Subsequent to June 30, 1999, options exercisable for an aggregate of 316,667
shares of common stock granted to Ms. Ngo were terminated.
(6) Calculated using the Black Scholes pricing model with the following
assumptions: (a) volatility - 100%, (b) risk free rate - 5%, (c) dividend
yield - 0% and (d) time of exercise - 10 years.
59
<PAGE>
AGGREGATE FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of these executive
officers. None of these individuals exercised any options during this period.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff(2)...................................... -- -- -- --
Roy W. Camblin III(3)...................................... -- -- -- --
Donald M. Corliss, Jr.(4).................................. -- -- -- --
David Bassett-Parkins(5)................................... -- -- -- --
Hahn Ngo(6)................................................ 75,000 75,000 478,500 478,500
John M. Wendel(7).......................................... -- -- -- --
Craig Gatarz(8)............................................ 21,703 140,109 103,089 665,118
</TABLE>
- ------------------------
(1) Based on the closing sale price of our common stock on the OTC bulletin
board at fiscal year end of $11.25 per share less the exercise price payable
for such shares. The fair market value of our common stock at June 30, 1999
was determined on the basis of the closing sale price of our common stock on
June 30, 1999.
(2) At June 30, 1999, Mr. Freadhoff held stock options under our plans
exercisable for an aggregate of 676,000 shares of common stock. Subsequent
to June 30, 1999, all of these options granted to Mr. Freadhoff were
terminated. In lieu of these options, Mr. Freadhoff received a restricted
stock award of 400,000 shares of common stock. At June 30, 1999, Mr.
Freadhoff held exercisable in-the-money stock options for an aggregate of
200,000 shares of common stock with a value of $1,276,000 and held
unexercisable in-the-money stock options for an aggregate of 476,000 shares
of common stock with a value of $3,036,880.
(3) Mr. Camblin commenced his employment with us in August 1999.
(4) At June 30, 1999, Mr. Corliss held stock options under our plans exercisable
for an aggregate of 664,000 shares of common stock. Subsequent to June 30,
1999, all of these options granted to Mr. Corliss were terminated. In lieu
of these options, Mr. Corliss received a restricted stock award of 400,000
shares of common stock. At June 30, 1999, Mr. Corliss held exercisable
in-the-money stock options for an aggregate of 200,000 shares of common
stock with a value of $1,276,000 and held unexercisable in-the-money stock
options for an aggregate of 464,000 shares of common stock with a value of
$2,960,320.
(5) At June 30, 1999, Mr. Bassett-Parkins held stock options under our plans
exercisable for an aggregate of 640,000 shares of common stock. Subsequent
to June 30, 1999, all of these options granted to Mr. Bassett-Parkins were
terminated. In lieu of these options, Mr. Bassett-Parkins received a
restricted stock award of 400,000 shares of common stock. At June 30, 1999,
Mr. Bassett-Parkins held exercisable in-the-money stock options for an
aggregate of 200,000 shares of common stock with a value of $1,276,000 and
held unexercisable in-the-money stock options for an aggregate of 440,000
shares of common stock with a value of $2,807,200.
(6) At June 30, 1999, Ms. Ngo held stock options under our plans exercisable for
an aggregate of 466,667 shares of common stock. Subsequent to June 30, 1999,
options exercisable for an aggregate
60
<PAGE>
of 316,667 shares of common stock granted to Ms. Ngo were terminated. At
June 30, 1999, Ms. Ngo held exercisable in-the-money stock options for an
aggregate of 133,333 shares of common stock with a value of $850,665 and
held unexercisable in-the-money stock options for an aggregate of 333,334
shares of common stock with a value of $2,126,671.
(7) At June 30, 1999, Mr. Wendel held no stock options.
(8) At June 30, 1999, Mr. Gatarz held stock options under our plans exercisable
for an aggregate of 161,812 shares of common stock. Subsequent to June 30,
1999, we amended performance-based stock options exercisable for an
aggregate of 150,000 shares of common stock granted to Mr. Gatarz so as to
provide that these warrants would vest over a period of two years and not as
a result of the satisfaction of performance milestones. As a result of this
amendment, of such options, options exercisable for an aggregate of 21,703
shares of common stock were deemed to have vested by June 30, 1999.
Accordingly, at June 30, 1999, Mr. Gatarz held exercisable in-the-money
stock options for an aggregate of 21,703 shares of common stock with a value
of $103,089 and held unexercisable in-the-money stock options for an
aggregate of 140,109 shares of common stock with a value of $665,118.
DIRECTOR COMPENSATION
To date, directors have received no compensation for their services other
than reimbursement of expenses relating to attending meetings of the board of
directors. However, in connection with Mr. Brock joining our Board of Directors,
the Compensation Committee granted Mr. Brock stock options under our 1999 stock
compensation program exercisable for an aggregate of 150,000 shares of common
stock exercisable at $11.00 per share, which options vest as follows: 50,000 at
July 20, 1999 and the remainder in equal quarterly increments for two years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not have a compensation committee during the period from our
inception on March 4, 1998 through September 29, 1998. On December 15, 1998 the
compensation committee determined to accrue salary retroactively for the
executive officers of Netgateway commencing July 1, 1998. The executive officers
of Netgateway have since waived this salary. There were no interlocking
relationships between us and other entities that might affect the determination
of the compensation of our directors and executive officers.
EMPLOYMENT AGREEMENTS
The table below is a summary of the provisions of the employment agreements
of our executive officers.
<TABLE>
<CAPTION>
CONTRACT
COMMENCEMENT CONTRACT
NAME DATE TERMINATION DATE PER ANNUM SALARY BONUS ARRANGEMENTS
- --------------------------------- -------------- ----------------- ------------------ ---------------------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff, January 1, December 31, 2001 $185,000 through $57,500 payable in July
Chairman of the Board of 1999 June 30, 1999 1999
Directors $201,500 Eligible for bonus of up to
thereafter $28,750 for each of the
three month periods ended
September 30, 1999 and
December 31, 1999 upon
satisfaction of earnings
milestones
Otherwise as determined by
the board of directors
Roy W. Camblin III, July 26, 1999 July 25, 2000 $175,000 As determined by the board
Chief Executive Officer, of directors
Chief Information Officer, and
Director-Nominee
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
CONTRACT
COMMENCEMENT CONTRACT
NAME DATE TERMINATION DATE PER ANNUM SALARY BONUS ARRANGEMENTS
- --------------------------------- -------------- ----------------- ------------------ ---------------------------
Donald M. Corliss, Jr., January 1, December 31, 2001 $185,000 through $55,000 payable in July
President and Director 1999 June 30, 1999 1999
$192,500 Eligible for bonus of up to
thereafter $27,500 for each of the
three month periods ended
September 30, 1999 and
December 31, 1999 upon
satisfaction of earnings
milestones
Otherwise as determined by
the board of directors
<S> <C> <C> <C> <C>
David Bassett-Parkins, January 1, December 31, 2001 $175,000 $50,000 payable in July
Chief Operating Officer, Chief 1999 1999
Financial Officer, and Director Eligible for bonus of up to
$25,000 for each of the
three month periods ended
September 30, 1999 and
December 31, 1999 upon
satisfaction of earnings
milestones
Otherwise as determined by
the board of directors
Hanh Ngo, January 1, December 31, 2001 $135,000 $25,000 payable in July
Executive Vice President-- 1999 1999
Operations Eligible for bonus of up to
$12,500 for each of the
three month periods ended
September 30, 1999 and
December 31, 1999 upon
satisfaction of earnings
milestones
Otherwise as determined by
the board of directors
John M. Wendel June 1, 1999 May 31, 2001 $130,000 $40,000 payable in June
Senior Vice President 1999
Eligible for bonus of up to
$7,500 for each of the
three month periods ended
May 31, 2000 and upon
satisfaction of earnings
milestones
Eligible for bonus of up to
$17,500 for each of the
three month periods ended
May 31, 2001 and upon
satisfaction of earnings
milestones
Craig Gatarz, April 5, 1999 April 5, 2002 $120,000 through Monthly bonus of $3,750 for
General Counsel December 31, 1999 the period from July 1,
$150,000 1999 through December 31,
thereafter 1999. Otherwise as
determined by the board of
directors.
</TABLE>
In the event of a change in control of Netgateway, all options previously
granted to these individuals which remain unvested will automatically vest
immediately. Upon a termination of the employment of any of these individuals
following a change in control for any reason other than the relevant officer's
death or disability or for cause we are required to pay to such individual in
the case of Messrs. Freadhoff, Corliss, Wendel and Bassett-Parkins, a lump sum
severance payment equal to three times the sum of (1) his then current annual
salary and (2) his highest bonus in the three year period preceding the change
in control, and in the case of Ms. Ngo, Mr. Gatarz, or Mr. Camblin a lump sum
severance payment equal to two times the sum of (1) her or his then current
annual salary and (2) her or his highest bonus in the two year period preceding
the change in control. If this severance payment results in the imposition of an
excise tax on the relevant individual, we are required to gross up this
individual for such excess tax and any income taxes arising as a result of the
gross up payment. In addition, if the relevant individual's employment is
terminated by us without cause or by the relevant individual with good reason
then we are required to pay the relevant individual a lump
62
<PAGE>
sum severance payment equal to his or her current annual salary for the
remainder of the employment period. The relevant individual may terminate his or
her employment at any time upon at least 30 days written notice to us. Upon the
termination of such agreement, the relevant individual is subject to
non-compete, non-disclosure, and non-solicitation provisions for one year.
STOCK OPTION PLANS
1998 STOCK OPTION PLAN FOR SENIOR EXECUTIVES
In December 1998, the board of directors adopted, and our stockholders
approved, the 1998 stock option plan for senior executives. This plan provides
for the grant of options to purchase up to 5,000,000 shares of common stock to
senior executives of Netgateway. Options may be either "incentive stock options"
or non-qualified stock options under Federal tax laws.
This plan will be administered by the compensation committee of the board of
directors, a majority of the members of which consist of "non-employee
directors" of the board of directors. The committee will determine, among other
things, the individuals who shall receive options, the time period during which
the options may be partially or fully vested and exercisable, the number of
shares of common stock issuable upon the exercise of each option, and the option
exercise price.
The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The per share exercise price of the common stock subject
to a non-qualified option may be established by the committee, but shall not be
less than 50% of the fair market value per share of common stock on the date the
option is granted. The aggregate fair market value of common stock for which any
person may be granted incentive stock options which first become exercisable in
any calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order and, during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment by reason of death, disability, or by us for cause (as defined in
each optionee's employment agreement), the optionee will have no more than
365 days after such termination during which the optionee shall be entitled to
exercise the vested options, unless otherwise determined by the board of
directors. Upon termination of employment by us without cause or by the optionee
for good reason (as defined in the optionee's employment agreement), the
optionee's options remain exercisable to the extent the options were exercisable
on the date of such termination until the expiration date of the options
pursuant to the option agreement.
We may grant options under this plan within ten years from the effective
date of the plan. The effective date of this plan is December 31, 1998. Holders
of incentive stock options granted under this plan cannot exercise these options
more than ten years from the date of grant. Options granted under this plan
generally provide for the payment of the exercise price in cash and may provide
for the payment of the exercise price by delivery to us of shares of common
stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised or by a combination of these
methods. Therefore, if it is provided in an optionee's option agreement, the
optionee may be able to tender shares of common stock to purchase additional
shares of common stock and may theoretically exercise all of his stock options
with no additional investment other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by us become available again for issuance under this
plan.
On the date of this prospectus, options exercisable for an aggregate of
500,000 shares of common stock were outstanding pursuant to this plan at a
weighted average exercise price of $6.68 per share.
63
<PAGE>
1999 STOCK OPTION PLAN FOR NON-EXECUTIVES
In July 1999, the board of directors adopted, subject to approval by our
stockholders, the 1999 Stock Option Plan for Non-Executives. This plan provides
for the grant of options to purchase up to 2,000,000 shares of common stock to
non-executives of Netgateway. Options may be either "incentive stock options" or
non-qualified stock options under Federal tax laws.
This plan will be administered by the compensation committee of the board of
directors, a majority of the members of which consist of "non-employee
directors" of the board of directors. The committee will determine, among other
things, the individuals who shall receive options, the time period during which
the options may be partially or fully vested and exercisable, the number of
shares of common stock issuable upon the exercise of each option, and the option
exercise price.
The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The per share exercise price of the common stock subject
to a non-qualified option may be established by the committee, but shall not be
less than 50% of the fair market value per share of common stock on the date the
option is granted. The aggregate fair market value of common stock for which any
person may be granted incentive stock options which first become exercisable in
any calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order and, during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment by reason of death, disability, or any us for cause (as defined in
each optionee's employment agreement), the optionee will have no more than 365
days after such termination during which the optionee shall be entitled to
exercise the vested options, unless otherwise determined by the board of
directors. Upon termination of employment by us without cause or by the optionee
for good reason (as defined in the optionee's employment agreement), the
optionee's options remain exercisable to the extent the options were exercisable
on the date of such termination until the expiration date of the options
pursuant to the option agreement.
We may grant options under this plan within ten years from the effective
date of the plan. The effective date of this plan is July 1, 1999. Holders of
incentive stock options granted under this plan cannot exercise these options
more than ten years from the date of grant. Options granted under this plan
generally provide for the payment of the exercise in cash and may provide for
the payment of the exercise price by delivery to us of shares of common stock
already owned by the optionee having a fair market value equal to the exercise
price of the options being exercised, or by a combination of these methods.
Therefore, if it is provided in an optionee's option agreement, the optionee may
be able to tender shares of common stock to purchase additional shares of common
stock and may theoretically exercise all of his stock options with no additional
investment other than the purchase of his original shares.
Any unexercised options that expire or terminate upon an optionee's easing
to be employed by us become available again for issuance under this plan.
On the date of this prospectus, options exercisable for an aggregate of
555,764 shares of common stock were outstanding pursuant to this plan, subject
to stockholder approval, at a weighted averaged exercise price of $10.18 per
share.
1998 STOCK COMPENSATION PROGRAM
In July 1998, the board of directors adopted the 1998 stock compensation
program. This program provides for the grant of options to purchase up to
1,000,000 shares of common stock to officers,
64
<PAGE>
employees, directors, and independent contractors and agents of Netgateway.
Options may be either "incentive stock options" or non-qualified stock options
under Federal tax laws.
This program will be administered by the board of directors, or, if options
are being granted to one or more of our executive officers by a committee of the
board a majority of the members of which shall consist of "non-employee
directors" of the board of directors. The board of directors or the committee,
as the case may be, will determine, among other things, the individuals who
shall receive options, the time period during which the options may be partially
or fully vested and exercisable, the number of shares of common stock issuable
upon the exercise of each option, and the option exercise price.
The exercise price per share of common stock subject to an option may not be
less than the fair market value per share of common stock on the date the option
is granted. The aggregate fair market value of common stock for which any person
may be granted incentive stock options which first become exercisable in any
calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order and, during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment for reasons other than the death or disability of the optionee, the
option shall terminate immediately, provided, however, that the board of
directors may, in its sole discretion, allow the option to be exercised, to the
extent exercisable on the date of termination of employment or service, at any
time within 60 days from the date of termination of employment or service. In
the event of termination of employment by reason of the death or disability of
the optionee, the option may be exercised, to the extent exercisable on the date
of death or disability, within one year from such date.
We may grant options under this program within ten years from the effective
date of the plan. The effective date of this program is July 31, 1998. Holders
of incentive stock options granted under this program cannot exercise these
options more than ten years from the date of grant. Options granted under this
program generally provide for the payment of the exercise price in cash and may
provide for the payment of the exercise price by delivery to us of shares of
common stock already owned by the optionee having a fair market value equal to
the exercise price of the options being exercised, or by a combination of these
methods. Therefore, if that is provided in an optionee's option agreement, the
optionee may be able to tender shares of common stock to purchase additional
shares of common stock and may theoretically exercise all of his stock options
with no additional investment other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by us become available again for issuance under this
program.
Although this program permits us to grant, in addition to incentive stock
options and non-qualified stock options,
- rights to purchase shares of our common stock to employees,
- restricted shares of our common stock,
- stock appreciation rights, and
- performance shares of common stock,
we have not issued any other type of compensation under this program other than
non-qualified stock options and have agreed not to do so in the future.
On date of this prospectus, options exercisable for an aggregate of
814,019 shares of common stock were outstanding pursuant to this plan at a
weighted average exercise price of $3.44 per share. We have agreed not to grant
any additional compensation pursuant to this plan.
65
<PAGE>
DIRECTORS' LIMITATION OF LIABILITY
Our certificate of incorporation and/or by-laws include provisions to
(1) indemnify the directors and officers to the fullest extent permitted by the
Delaware General Corporation Law including circumstances under which
indemnification is otherwise discretionary and (2) eliminate the personal
liability of directors and officers for monetary damages resulting from breaches
of their fiduciary duty, except for liability for breaches of the duty of
loyalty, acts, or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware General Corporation Law, or for any transaction from which the director
derived an improper personal benefit. We believe that these provisions are
necessary to attract and retain qualified persons as directors and officers.
We have a directors and officers liability insurance policy in an amount of
not less than $9 million.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to our directors, officers, and controlling persons pursuant to
the foregoing provisions or otherwise, we have been advised that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
66
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of this prospectus,
- each person who is known by us to be the owner of record or beneficial
owner of more than 5% of the outstanding common stock,
- each of our directors and executive officers, and
- all of our directors and executive officers as a group,
the number of shares of common stock beneficially owned by each such person and
such group, and the percentage of the outstanding shares owned by each such
person and such group.
Except as otherwise noted below, the address of each of the persons in the
table is c/o Netgateway, Inc., 300 Oceangate, 5(th) Floor, Long Beach,
California 90802.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------------------------------------------------------
NUMBER OF WARRANTS,
OPTIONS GRANTED UNDER
OUR STOCK OPTION PLANS
OR SHARES OF COMMON
STOCK
SUBJECT TO FORFEITURE
INCLUDED IN NUMBER OF PERCENT PRIOR PERCENT AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES SHARES TO OFFERING OFFERING
- -------------------------------------------- ----------------- ------------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff.......................... 2,118,549(1) 400,000 16.9% 13.7%
Roy W. Camblin III.......................... 50,000 50,000 * *
Donald M. Corliss, Jr....................... 552,000 400,000 4.4 3.6
David Bassett-Parkins....................... 585,000 400,000 4.7 3.8
Hanh Ngo.................................... 255,000 150,000 2.0 1.6
John W. Wendel.............................. 62,500 62,500 * *
Craig Gatarz................................ 65,109 65,109 * *
Scott Beebe................................. 943,651 0 7.6 6.1
1845 Baywood
Salt Lake City, Utah 84117
William Brock............................... 50,000 50,000 * *
Marketplace Technologies, Inc.
125 Cambridge Park Drive
Cambridge, Massachusetts 02140
Ronald Spire................................ 87,302 0 * *
10880 Wilshire Boulevard
Suite 1050
Los Angeles, California 90024
Michael Khaled.............................. 787,302 0 6.3 5.1
42690 Rio Nedo #E
Temecula, California 92590
Donald Danks................................ 743,640 0 6.0 4.8
2333 East Coast Highway
Suite D
Corona Del Mar, California 92625
Michael Vanderhoff.......................... 646,151 0 5.2 4.2
6512 North State Road 32
Peoa, Utah 84061
All directors and executive officers of
Netgateway as a group (six persons)....... 4,769,101 1,577,609 37.0 30.0
<CAPTION>
OPTIONS
GRANTED
UNDER OUR
STOCK OPTION
PLANS
NOT INCLUDED
IN NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES
- -------------------------------------------- ------------
<S> <C>
Keith D. Freadhoff.......................... 0
Roy W. Camblin III.......................... 150,000
Donald M. Corliss, Jr....................... 0
David Bassett-Parkins....................... 0
Hanh Ngo.................................... 0
John W. Wendel.............................. 37,500
Craig Gatarz................................ 119,396
Scott Beebe................................. 0
1845 Baywood
Salt Lake City, Utah 84117
William Brock............................... 100,000
Marketplace Technologies, Inc.
125 Cambridge Park Drive
Cambridge, Massachusetts 02140
Ronald Spire................................ 0
10880 Wilshire Boulevard
Suite 1050
Los Angeles, California 90024
Michael Khaled.............................. 0
42690 Rio Nedo #E
Temecula, California 92590
Donald Danks................................ 0
2333 East Coast Highway
Suite D
Corona Del Mar, California 92625
Michael Vanderhoff.......................... 0
6512 North State Road 32
Peoa, Utah 84061
All directors and executive officers of
Netgateway as a group (six persons)....... 406,896
</TABLE>
- ------------------------
* Less than one percent.
(1) Includes 750,000 shares of common stock currently held by the Individual
Trusts, of which Mr. Freadhoff is trustee and over which Mr. Freadhoff has
beneficial ownership. However, see "Risk Factors--As Our Chairman and Chief
Executive Has Pledged His Stock, We May Experience A Change Of Control" and
"Related Party Transactions."
67
<PAGE>
As used in the table above and elsewhere in this prospectus, the term
BENEFICIAL OWNERSHIP with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the next 60 days following the date of this prospectus. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated. Because the table
above provides information with respect to the securities of Netgateway
beneficially owned by the persons indicated, we have segregated from this
information the information relating to securities of Netgateway owned, but not
beneficially owned, by the persons indicated according to this definition. At
the date of this prospectus, these securities consist of shares of common stock
issuable upon the exercise of options granted under our stock option plans
described in "Management--Stock Option Plans." In addition, we have excluded
from the beneficial ownership of Messrs. Corliss and Bassett-Parkins and
Ms. Ngo the shares of common stock currently in the Individual Trusts, as
described under "Related Party Transactions."
68
<PAGE>
RELATED PARTY TRANSACTIONS
In July 1998 and August 1998, we loaned $600,000 and an additional $200,000,
respectively, to Admor Memory Corp., a California-based computer memory maker,
during our then pending acquisition of Admor, which acquisition was not
consummated. This loan is due and payable on December 31, 1999 and accrues
interest at the rate of 9.5% per annum until October 1999 and 10% thereafter per
annum. In August 1998, we agreed to subordinate this obligation to a credit
facility obtained by Admor and to receive payment of this obligation from the
net income and the proceeds of equity sales of Admor. Subsequently, Admor
defaulted on this credit facility and entered receivership. We have reduced the
value of this loan in our financial statements to $0 effective December 31,
1998. Keith D. Freadhoff, our Chairman of the Board of Directors, and Scott
Beebe, one of our Directors, beneficially own less than 1% and 2.89%,
respectively, of the outstanding capital stock of Admor. Donald Danks, the
beneficial owner of 699,000 shares of our common stock, owned approximately 1.6%
of the outstanding common stock of Admor. Such individuals did not directly or
indirectly receive any of the proceeds of these loans.
From our inception on March 1, 1998 until June 1998, our business plan was
to engage in the licensing and distribution of software support materials for
the governmental and educational markets. In June 1998, we determined to change
our business model to the development of technology to enable businesses and
other organizations to engage in electronic commerce. In connection with the
implementation of our initial business plan, we entered into sublicensing
agreements related to proprietary courseware of ProSoft, an Internet training
solutions provider based in Austin, Texas. ProSoft entered into a courseware
reproduction and licensing agreement with Steps granting this firm the exclusive
right to sell courseware to the Federal government. This licensing obligation
was personally guaranteed by Scott Beebe. ProSoft also entered into a courseware
reproduction and licensing agreement with Training Resources International,
granting an exclusive right to sell courseware in the education market. This
licensing obligation was personally guaranteed by Michael Khaled, one of our
significant stockholders. We, with the consent of ProSoft, entered into
exclusive sublicense agreements with each of Steps and Training Resources. In
consideration of the sublicense from Training Resources, we agreed to assume the
minimum royalty payments required under their master license, totaling
$1,600,000. In consideration of the sublicense from Steps, we
- assumed the minimum royalty payments required under their master license,
totaling $1,500,000,
- assumed Steps' $200,000 obligation to Vision Holdings, Inc., which had
advanced funds to Steps in connection with its master license, and
- issued 1,000,000 shares of common stock to Steps.
Of this aggregate obligation of $3,300,000, we paid approximately $1,500,000.
Due to a lack of revenue derived from these licenses, we terminated the licenses
and, in December 1998, entered into a settlement agreement with such corporation
pursuant to which we have been released from all further obligation with respect
to the remaining amounts payable. Steps is substantially owned by Scott Beebe,
one of our Directors and significant stockholders. Training Resources is owned
by Michael Khaled, another of our significant stockholders. Mr. Freadhoff was a
founder of ProSoft and ProSoft's Chief Executive Officer and a director until
his resignation in November 1997. Mr. Freadhoff beneficially owns approximately
3.32% of the outstanding common stock of ProSoft. Donald M. Corliss, Jr., our
President and a Director, and Scott Beebe, one of our Directors' each
beneficially owns less than 1%, of the outstanding common stock of ProSoft.
Donald Danks, the beneficial owner of 699,000 shares of our common stock, was an
officer, director, and significant stockholder of ProSoft until early 1998.
During the period from March 4, 1998 through June 30, 1998, Mr. Freadhoff
loaned us $132,429, $100,000 of which was converted into a capital contribution
in June 1998. The remaining balance of
69
<PAGE>
$32,429 is not interest bearing and is repayable upon demand. During the year
ended June 30, 1999, $30,630 was repaid.
During the period from March 4, 1998 through June 30, 1998, Michael Khaled,
Donald Danks, and Lynn Turnbow, stockholders of Netgateway, paid on our behalf
to ProSoft pursuant to its master licenses $200,000, $100,000, and $100,000,
respectively, in exchange for an aggregate of 600,000 shares of common stock.
In May 1999, Mr. Freadhoff loaned us $100,000, which loan is non-interest
bearing. This loan was repaid with a portion of the proceeds of our May through
September 1999 private placement. In June 1999, the Company loaned
Mr. Freadhoff $30,000 which was repaid in July 1999.
In November 1998, we issued warrants exercisable for an aggregate of 300,000
shares of common stock, 50,000 shares of common stock to each of Messrs.
Freadhoff, Beebe, Danks, and Vanderhoff, and 100,000 shares of common stock to
Michael Khaled, a significant stockholder of Netgateway. The warrants were
issued in order to reimburse Messrs. Freadhoff, Beebe, Danks, and Vanderhoff for
voluntarily transferring to Mr. Khaled an equal number shares of common stock in
order to settle a dispute between Netgateway and Mr. Khaled. These warrants are
exercisable at $1.00 per share and expire in November 2000.
In December 1998, Messrs. Freadhoff, Beebe, Danks, and Vanderhoff,
contributed to a trust (the "Master Trust") 450,000, 100,000, 100,000, and
100,000 shares of common stock, respectively. The trustee of the Master Trust is
Mr. Freadhoff and these individuals are the beneficiaries of this trust. This
trust sold 350,000 of these shares to each of two trusts the trustee of which is
Mr. Freadhoff and the beneficiary of one of which is Donald M. Corliss, Jr., our
President and one of our Directors, and the beneficiary of one of which is David
Bassett-Parkins, our Chief Financial Officer and Chief Operating Officer, and
one of our Directors, in exchange for a promissory note from each of these
trusts in the principal amount of $350,000. Each of these individuals has
delivered to their respective trust a promissory note in the principal amount of
$350,000. The Master Trust sold the remaining 50,000 of these shares to a trust
the trustee of which is Mr. Freadhoff and the beneficiary of which is Hanh Ngo,
our Executive Vice President--Operations, in exchange for a promissory note from
this trust in the principal amount of $50,000. Ms. Ngo has delivered to this
trust a promissory note in the principal amount of $350,000. The trusts (the
"Individual Trusts") of which Messrs. Corliss and Bassett-Parkins and Ms. Ngo
are beneficiaries are, by their terms, permitted to deliver the shares of common
stock to their beneficiaries in three equal installments for a purchase price of
$1.00 per share on or after January 1, 2000, 2001, and 2002 (subject to
acceleration in the event of a change of control), provided that the individual
beneficiary of the Individual Trust in question has not voluntarily terminated
their employment with us prior to these dates. These individuals will satisfy
the purchase price for their shares by means of the repayment of their
respective promissory note to the respective Individual Trust. In the event that
any of these beneficiaries should so terminate their employment with us prior to
these dates, the trustee of the respective Individual Trust will return these
shares in such Individual Trust to the Master Trust in satisfaction of the
promissory note from this Individual Trust to the Master Trust. The Master Trust
will then deliver these shares to its beneficiaries in proportion to their
contributions of shares of common stock to the Master Trust.
During May through September 1999, we conducted our May through September
1999 private placement. Cruttenden Roth acted as one of the placement agents of
that offering and received compensation for their services in the form of
$249,500 in cash and warrants exercisable for an aggregate of 139,750 shares of
common stock for a period of four years commencing one year after the initial
closing of that offering at the exercise price of $16.50 per share.
We have agreed with Cruttenden Roth Incorporated, as representative of the
several underwriters, that all future transactions between us and any of our
officers, directors, and 5% stockholders will be on terms no less favorable to
us than can be obtained from unaffiliated third parties and will be approved by
a majority of our independent and disinterested directors.
70
<PAGE>
DESCRIPTION OF SECURITIES
The following description of our capital stock and certain provisions of our
certificate of incorporation and bylaws is a summary and is qualified in its
entirety by the provisions of our certificate of incorporation and bylaws, which
have been filed as exhibits to our registration statement of which this
prospectus is a part.
IN GENERAL
We are authorized by our certificate of incorporation to issue an aggregate
of 40,000,000 shares of common stock, par value $.001 per share, and 5,000,000
shares of preferred stock, par value $.001 per share. At the date of this
prospectus, 12,495,768 shares of common stock were outstanding and held of
record by approximately 457 stockholders and no shares of preferred stock were
outstanding.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Holders of the common
stock do not have cumulative voting rights, which means that the holders of more
than one half of our outstanding shares of common stock, subject to the rights
of the holders of preferred stock, can elect all of our directors, if they
choose to do so. In this event, the holders of the remaining shares of common
stock would not be able to elect any directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of common stock are entitled to receive ratably,
dividends when, as, and if declared by the board of directors out of funds
legally available for that purpose and, upon our liquidation, dissolution, or
winding up, are entitled to share ratably in all assets remaining after payment
of liabilities and payment of accrued dividends and liquidation preferences on
the preferred stock, if any. Holders of common stock have no preemptive rights
and have no rights to convert their common stock into any other securities. The
outstanding common stock is validly authorized and issued, fully-paid, and
nonassessable. In the event we were to elect to sell additional shares of common
stock following this offering, investors in this offering would have no right to
purchase additional shares. As a result, their percentage equity interest in us
would be diluted.
The shares of our common stock offered in this offering will be, when issued
and paid for, fully paid and not liable for further call and assessment. Except
as otherwise permitted by Delaware law, and subject to the rights of the holders
of preferred stock, all stockholder action is taken by the vote of a majority of
the outstanding shares of common stock voted as a single class present at a
meeting of stockholders at which a quorum consisting of a majority of the
outstanding shares of common stock is present in person or proxy.
PREFERRED STOCK
We may issue preferred stock in one or more series and having the rights,
privileges, and limitations, including voting rights, conversion privileges, and
redemption rights, as may, from time to time, be determined by the board of
directors. Preferred stock may be issued in the future in connection with
acquisitions, financings, or other matters as the board of directors deems
appropriate. In the event that we determine to issue any shares of preferred
stock, a certificate of designation containing the rights, privileges, and
limitations of this series of preferred stock shall be filed with the Secretary
of State of the State of Delaware. The effect of this preferred stock is that
our board of directors alone, and subject to Federal securities laws, applicable
blue sky laws, and Delaware law, may be able to authorize the issuance of
preferred stock which could have the effect of delaying, deferring, or
preventing a change in control of Netgateway without further action by the
stockholders, and may adversely affect the voting and other rights of the
holders of the common stock. The issuance of
71
<PAGE>
preferred stock with voting and conversion rights may also adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others.
REGULATION OF THE INTRODUCTION OF BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
Our by-laws include provisions which regulate the submission by persons
other than the board of directors of matters to a vote of stockholders.
Generally, at an annual meeting of the stockholders, the only business conducted
must be brought before the annual meeting either by, or at the direction of, the
board of directors or by any of our stockholders who is a stockholder of record
at the time of giving of notice for such meeting, who shall be entitled to vote
at such annual meeting, and who complies with the notice procedures set forth in
the by-laws. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must be given timely notice thereof in writing to
our Secretary. To be timely, a stockholder's notice must be delivered or mailed
to, and received at, our principal executive offices not less than 60 days nor
more than 90 days prior to the annual meeting, regardless of any postponement,
deferrals, or adjournments of that meeting to a later date; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received no later than the close of business on
the 10(th) day following the day on which notice of the date of the annual
meeting was mailed or public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting the following:
- a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting this business at the
annual meeting,
- the name and address, as they appear on our books, of the stockholder
proposing this business,
- the class and number of our shares which are beneficially owned by the
stockholder, and
- any material interest of the stockholder in the business he wishes to
bring before the annual meeting.
Notwithstanding anything in the by-laws to the contrary, no business shall
be conducted at the stockholder meeting, except in accordance with the
procedures set forth in the by-laws. The chairman of the meeting, as determined
in accordance with the by-laws, shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and, in accordance with the provisions of these by-laws, and if he should so
determine, he shall so declare to the meeting and any business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing, a stockholder shall also comply with all applicable requirements of
the Exchange Act with respect to the above.
QUOTATION ON NASDAQ NATIONAL MARKET
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "NGWY." Our common stock currently trades on the OTC
Bulletin Board under this symbol.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Colonial Stock
Transfer Co., 455 East 400 South, Suite 100, Salt Lake City, Utah 84111.
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 15,495,768 shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option, and no exercise of outstanding options or warrants, no conversion of any
outstanding convertible securities, and no exchange of any outstanding
exchangeable securities. Of these shares, 5,481,567 shares, including the
3,000,000 shares offered in this offering, will be freely tradeable without
further registration under the Securities Act. All of our officers and directors
and certain of our current stockholders holding an aggregate of
7,698,988 shares of our common stock have agreed not to sell, or otherwise
dispose of, any of our securities for a period of at least six months from the
date of this offering without the underwriters' prior written consent.
Of the presently outstanding 12,495,768 shares of common stock, 11,491,310
are "restricted securities" within the meaning of Rule 144 under the Securities
Act and, if held for at least one year, would be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144
following the expiration of such one-year period. In general, under Rule 144 as
currently in effect, a person or persons whose shares are aggregated, including
a person who may be deemed to be an "affiliate" of ours as that term is defined
under the Securities Act, would be entitled to sell within any three month
period a number of shares beneficially owned for at least one year that does not
exceed the greater of (1) 1% of the then outstanding shares of common stock, or
(2) the average weekly trading volume in the common stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice, and the availability of
current public information about us. However, a person who is not deemed to have
been an affiliate of us during the 90 days preceding a sale by such person and
who has beneficially owned such shares of common stock for at least two years
may sell such shares without regard to the volume, manner of sale, or notice
requirements of Rule 144.
Following this offering, we cannot predict the effect, if any, that sales of
shares of common stock pursuant to Rule 144 or otherwise, or the availability of
such shares for sale, will have on the market price prevailing from time to
time. Nevertheless, sales by the current stockholders of a substantial number of
shares of common stock in the public market could materially adversely affect
prevailing market prices for the common stock. In addition, the availability for
sale of a substantial number of shares of common stock acquired through the
exercise of the representative's warrants or the outstanding options under our
existing stock option plans or outstanding warrants or convertible securities
could materially adversely affect prevailing market prices for our common stock.
See "Risk Factors--Future Sales of Common Stock By Our Existing Stockholders
Could Adversely Affect Our Stock Price."
Some of our stockholders, holding in the aggregate approximately 1,511,429
shares of common stock or holding securities convertible into or exercisable or
exchangeable for shares of common stock, have the right, subject to a number of
conditions and limitations, to include their shares in registration statements
relating to our securities. Stockholders holding these shares of common stock
have waived these rights with respect to this offering. By exercising their
registration rights and causing a large number of shares to be registered and
sold in the public market, these holders may cause the market price of the
common stock to fall.
Up to 300,000 additional shares of common stock may be purchased by the
underwriters during the period commencing on the first anniversary of the date
of this prospectus and terminating on the fifth anniversary of the date of this
prospectus through the exercise of the representative's warrants. Any and all
securities purchased upon the exercise of the representative's warrants may be
freely tradeable, provided that we satisfy certain securities registration and
qualification requirements in accordance with the terms of the representative's
warrants. See "Underwriting."
73
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
we have agreed to sell to each of the underwriters named below, and each of the
underwriters, for which Cruttenden Roth and Pennsylvania Merchant Group are
acting as representatives, has severally, and not jointly, agreed to purchase
the number of shares offered hereby set forth opposite their respective names
below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated.....................................................
Pennsylvania Merchant Group......................................................
----------
Total........................................................................ 3,000,000
</TABLE>
A copy of the underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The underwriting
agreement provides that the obligation of the underwriters to purchase the
shares is subject to some conditions. The underwriters shall be obligated to
purchase all of the shares (other than those covered by the underwriters'
over-allotment option described below), if any are purchased.
The representatives have advised us that the underwriters propose initially
to offer the shares of common stock to the public at the public offering price
set forth on the cover page of this prospectus and that they may allow certain
dealers who are members of the NASD, and some foreign dealers, concessions not
in excess of $ per share, of which amount a sum not in excess of
$ per share may in turn be reallowed by such dealers to other
dealers who are members of the NASD and to some foreign dealers. After the
commencement of this offering, the offering price, the concession to selected
dealers, and the reallowance to other dealers may be changed by the
representatives.
The representatives may elect to change the offering price, concession to
selected dealers, or the reallowance to other dealers under certain
circumstances. Some examples of such circumstances would include the following:
(i) if some or all of the members of the selling syndicate are not prepared
to go forward with the offering, due to market conditions or demand for the
issuer's securities, either as priced or at the volume of shares to be sold,
then the representatives may adjust the concession to selected dealers and the
reallowance to other dealers in order to provide sufficient economic incentives
to the selling syndicate to complete the offering. Any change in such
concessions or reallowances would not, however, change the total compensation to
be received by the underwriters, as such was approved by the NASD as fair and
reasonable;
(ii) if the representatives receive indications from members of the selling
syndicate that the offering price is too high to enable them to sell all of the
proposed shares of common stock, they could decide to reduce the offering price.
If the representatives lower the offering price, the total compensation to be
received by the underwriters should still be fair and reasonable, as a lowering
of the offering price would lower the total amount of the offering, thus,
increasing the amount of compensation to which the underwriters would be
entitled under the NASD rules; and
(iii) if demand for the issuer's securities from members of the selling
syndicate is significantly greater than expected, then the representatives could
decide to increase the offering price, provided that such an increase would not
render the underwriters compensation, as previously approved by the NASD, unfair
or unreasonable.
If the representatives change the offering price, the concession to the
selected dealers, or the reallowance to other dealers, they would implement the
following procedures to adequately advise the appropriate people: (i) file a
press release; (ii) give notice to all members of the selling group and
74
<PAGE>
receive confirmation from them that the changes were conveyed to the investors;
and (iii) file a post-effective amendment.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the underwriters may be required to make in respect.
We have agreed to pay to the representatives an expense allowance, on a
non-accountable basis, equal to % of the gross proceeds derived from the sale
of 3,000,000 shares offered in this offering, or 3,450,000 shares if the
underwriters' over-allotment option is exercised in full. We paid an advance on
this allowance in the amount of $25,000. We have also agreed to pay some of the
representatives' expenses in connection with this offering, including expenses
in connection with qualifying the shares offered hereby for sale under the laws
of such states as the representative may designate and the placement of
tombstone advertisements. We estimate that the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $ .
The following table sets forth the amount of discounts and commissions to be
paid to the underwriters by Netgateway in connection with the offering:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE TOTAL WITH EXERCISE
OF OVER-ALLOTMENT OF OVER-ALLOTMENT
DISCOUNT PER SHARE OPTION OPTION
- ------------------- ----------------------- -----------------------
<S> <C> <C>
$ $ $
</TABLE>
The following table sets forth the amount and nature of other forms of
compensation to be paid to the representatives by Netgateway in connection with
the offering:
<TABLE>
<CAPTION>
TYPE OF COMPENSATION TERMS TOTAL AMOUNT
- --------------------------------- --------------------------------- ---------------------------------
<S> <C> <C>
Non-Accountable Expense Allowance % of the gross proceeds of the $ ($ if the
offering underwriters' over-allotment
option is exercised in full)
Underwriters Warrant Warrant to purchase up to 300,000 Depends on the market price of
shares at an exercise price per common stock at the time of
share of % of the public exercise
offering price
Two Year Consulting Agreement(1) Provide financial advisory $ payable at the closing of
services this offering
</TABLE>
- ------------------------
(1) Two year consulting agreement is between Netgateway and Cruttenden Roth.
75
<PAGE>
We have agreed to retain the representatives as financial consultants for a
period of two years to commence on the closing of this offering at an aggregate
fee of $ , payable at the closing of this offering. Under this agreement,
the representatives shall provide advisory services related to mergers and
acquisitions activity, corporate finance and other related matters.
In connection with this offering, we have granted the representatives the
right, for the three-year period commencing on the closing date of this
offering, to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board of
directors and to receive reimbursement for all out-of-pocket expenses incurred
in attending these meetings. In addition, such designee will be entitled to
indemnification to the same extent as our directors.
The representatives have advised us that the underwriters do not intend to
confirm sales of the shares of common stock offered hereby to any account over
which they exercise discretionary authority.
We and our officers, directors, and certain of our current stockholders,
have agreed not to offer, assign, issue, sell, hypothecate, or otherwise dispose
of any shares of our common stock, our securities convertible into, or
exercisable or exchangeable for, shares of our common stock, or shares of our
common stock received upon conversion, exercise, or exchange of such securities,
to the public without the prior written consent of Cruttenden Roth and
Pennsylvania Merchant Group for a period of at least six months after the date
of this prospectus. Cruttenden Roth and Pennsylvania Merchant Group may grant or
withhold their respective consent in their sole discretion based upon their
judgment as to whether any such proposed sales or transfers of our common stock
would have an adverse effect on the market price of our publicly traded shares.
Cruttenden Roth and Pennsylvania Merchant Group's decision whether to grant or
withhold its consent will not be based upon, nor take into account, its own
holdings of our common stock.
Prior to this offering, our common stock traded on the OTC Bulletin Board.
We have applied to have our common stock quoted on the Nasdaq National Market.
The public offering price for the shares has been determined by arms-length
negotiations between us and the representatives principally on the basis of the
market price for our common stock prior to the date of this prospectus. The
factors considered in such negotiations were prevailing market conditions, our
history and prospects, and the history and prospects of the industry in which we
compete, an assessment of our management, our capital structure, and such other
factors deemed relevant.
Cruttenden Roth acted as one of the placement agents in our May through
September 1999 private placement. They received compensation for their services
in the form of $249,500 in cash and warrants exercisable for an aggregate of
139,750 shares of our common stock for a period of four years commencing one
year after the initial closing of that offering at an exercise price of $10.00
per share.
ISG Solid Capital Markets, LLC, a member of the NASD, acted as the other
placement agent in our May through September 1999 private placement. They
received compensation for their services in the form of $ in cash and
warrants exercisable for an aggregate of 327,500 shares of our common stock for
a period of four years commencing one year after the initial closing of that
offering at an exercise price of $10.00 per share.
We have also granted to the underwriters an option, exercisable during the
45-day period commencing on the date of this prospectus, to purchase at the
public offering price per share, less underwriting discounts and commissions, up
to an aggregate of 450,000 shares of common stock. To the extent this option is
exercised, the underwriters will become obligated, subject to some conditions,
to purchase additional shares of common stock. The underwriters may exercise
such right of purchase only for the purpose of covering over-allotments, if any,
made in connection with the sale of shares. Purchases of shares of common stock
upon exercise of the over-allotment option will result in the realization of
additional compensation by the underwriters.
76
<PAGE>
In connection with this offering, we have agreed to sell to the
representatives, individually and not as representatives of the several
underwriters, at the price of $.001 per warrant, the representatives' warrants
to purchase an aggregate of 300,000 shares of common stock. The representatives'
warrants are exercisable for a period of four years commencing one year after
the date of this prospectus at an exercise price per share equal to $ . The
representatives' warrants may not be sold, transferred, assigned, pledged, or
hypothecated for a period of 12 months from the date of the prospectus, except
to members of the selling group and to officers and partners of the
representative and members of the selling group. The representatives' warrants
contain anti-dilution provisions providing for adjustments of the exercise price
and number of shares issuable on exercise of the representatives' warrants, upon
the occurrence of specified events, including stock dividends, stock splits, and
recapitalizations. The holders of the representatives' warrants have no voting,
dividend, or other rights as stockholders of Netgateway with respect to shares
of common stock underlying the representatives' warrants, unless the
representatives' warrants shall have been exercised.
A new registration statement or post-effective amendment to the registration
statement will be required to be filed and declared effective under the
Securities Act before distribution to the public of the representatives'
warrants and the underlying shares. We have agreed, on one occasion during the
period beginning one year after the date of this prospectus and ending five
years after the date of this prospectus, if requested by the holders of a
majority of the representatives' warrants or shares of common stock issued upon
their exercise, to make all necessary filings to permit a public offering of the
representatives' warrants and underlying shares and to use our best efforts to
cause such filing to become effective under the Securities Act and to remain
effective for at least 12 months, at our sole expense. In addition, we have
agreed to give advance notice to holders of the representatives' warrants and
the underlying shares of common stock of our intention to file a registration
statement, and in such case, holders of the representatives' warrants and the
underlying shares shall have the right to require us to include such shares of
common stock in such registration statement at our expense (subject to specified
limitations).
During and after this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with this offering. The underwriters also
may impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the common stock sold in this
offering for their account may be reclaimed by the syndicate if such shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain, or otherwise affect the market price of the
common stock, which may be higher than the price that might otherwise prevail in
the open market. Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor the underwriters make any representation that the underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Brock Silverstein LLC, New York, New York. The validity of the
shares of common stock offered hereby will be passed upon for the underwriters
by Greenberg Traurig, New York, New York. Brock Silverstein LLC renders legal
services to Cruttenden Roth in connection with matters other than this offering.
Robert Steven Brown, a member of Brock Silverstein LLC, owns beneficially and of
record an aggregate of 5,000 shares of common stock.
77
<PAGE>
EXPERTS
The consolidated financial statements of Netgateway, Inc. and subsidiaries
as of June 30, 1999 and 1998 and for the period from March 4, 1998 (inception)
to June 30, 1998 and the year ended June 30, 1999 have been included herein and
in the Form S-1 in reliance upon the report of KPMG LLP, independent certified
public accountants, appearing elsewhere herein upon the authority of said firm
as experts in accounting and auditing.
The financial statements of Infobahn Technologies LLC dba Digital Genesis as
of December 31, 1997 and 1996 and for the years ended December 31, 1997 and 1996
have been included herein and in the Form S-1 in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein
upon the authority of said firm as experts in accounting and auditing.
The financial statements of Spartan Multimedia, Inc. as of August 31, 1998
and for the year ended August 31, 1998 have been included herein and in the
Form S-1 in reliance upon the report of Allan Hogenson, Chartered Accountant,
appearing elsewhere herein upon the authority of said individual as expert in
accounting and auditing.
The financial statements of Video Calling Card, Inc. as of December 31, 1997
and 1996 and the years then ended and as of December 31, 1996 and 1995 and for
the year ended December 31, 1996 and the period from inception (April 13, 1995)
through December 31, 1995, have been included herein and in the Form S-1 in
reliance upon the reports of Ted A. Madsen, independent certified public
accountant, appearing elsewhere herein upon the authority of said individual as
expert in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits, schedules, and amendments to this
registration statement, under the Securities Act with respect to the shares of
common stock to be sold in this offering. This prospectus does not contain all
the information set forth in the registration statement. For further information
with respect to us and the shares of our common stock to be sold in this
offering, we make reference to the registration statement. Although this
prospectus contains all material information regarding us, statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete, and in each instance we make
reference to the copy of such contract, agreement, or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
You may read and copy all or any portion of the registration statement or
any other information which we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with this Act,
will file periodic reports, proxy and information statements, and other
information with the Securities and Exchange Commission.
78
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NETGATEWAY, INC. AND SUBSIDIARIES PRO FORMA STATEMENTS
Unaudited Pro Forma Consolidated Statement of Operations for the period March 4,
1998 (Inception) through June 30, 1998........................................... F-4
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
June 30, 1999.................................................................... F-5
Notes to Unaudited Pro Forma Consolidated Statement of Operations.................. F-6
NETGATEWAY, INC. AND SUBSIDIARY
Independent Auditor's Report for Netgateway, Inc................................... F-7
Consolidated Balance Sheets as of June 30, 1999 and 1998........................... F-8
Consolidated Statements of Operations for the year ended June 30, 1999, the period
March 4, 1998 (Inception) through June 30, 1998 and the cumulative period
March 4, 1998 (Inception) through June 30, 1999.................................. F-9
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the period
March 4, 1998 (Inception) through June 30, 1999.................................. F-10
Consolidated Statements of Cash Flows for the year ended June 30, 1999, the period
March 4, 1998 (Inception) through June 30, 1998 and the cumulative period
March 4, 1998 (Inception) through June 30, 1999.................................. F-11
Notes to Consolidated Financial Statements......................................... F-12
Unaudited Consolidated Balance Sheet as of September 30, 1999...................... F-27
Unaudited Consolidated Statements of Operations for the three months ended
September 30, 1999 and 1998 and the cumulative period March 4, 1998 (Inception)
through September 30, 1999....................................................... F-28
Unaudited Consolidated Statements of Changes in Shareholders' Equity (Deficit) for
the period March 4, 1998 (Inception) through September 30, 1999.................. F-29
Unaudited Consolidated Statements of Cash Flows for the three months ended
September 30, 1999 and 1998 and the cumulative period March 4, 1998 (Inception)
through September 30, 1999....................................................... F-31
Notes to Unaudited Consolidated Financial Statements............................... F-32
INFOBAHN TECHNOLOGIES, LLC DBA DIGITAL GENESIS
Independent Auditor's Report for Infobahn Technologies, LLC dba Digital Genesis.... F-36
Balance Sheets as of December 31, 1997 and 1996.................................... F-37
Statements of Operations for the Year Ended December 31, 1997 and the period from
February 2, 1996 (inception) through December 31, 1996........................... F-38
Statements of Members' Equity (Deficit) for the Year Ended December 31, 1997 and
the period from February 2, 1996 (inception) through December 31, 1996........... F-39
Statements of Cash Flows for the Year Ended December 31, 1997 and the period from
February 2, 1996 (inception) through December 31, 1996........................... F-40
Notes to Financial Statements...................................................... F-41
Unaudited Balance Sheets as of March 31, 1998 and December 31, 1997................ F-43
Unaudited Statements of Earnings and Members' Equity for the three months ended
March 31, 1998 and 1999.......................................................... F-44
Unaudited Statements of Cash Flows for the three months ended March 31, 1998 and
1997............................................................................. F-45
Notes to Unaudited Financial Statements............................................ F-46
SPARTAN MULTIMEDIA, INC.
Auditor's Report for Spartan Multimedia, Inc....................................... F-48
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Balance Sheet as of August 31, 1998................................................ F-49
Statement of Earnings and Retained Earnings for the Year Ended August 31, 1998..... F-50
Statement of Changes in Financial Position for the Year Ended August 31, 1998...... F-51
Notes to Financial Statements...................................................... F-52
Unaudited Balance Sheets as of November 30, 1998 and August 31, 1998............... F-54
Unaudited Statements of Earnings and Retained Earnings for the three months ended
November 30, 1998 and for the period September 19, 1997 (Inception) through
November 30, 1997................................................................ F-55
Unaudited Statements of Changes in Financial Position for the three months ended
November 30, 1998 and for the period September 19, 1997 (Inception) through
November 30, 1997................................................................ F-56
Notes to Unaudited Financial Statements............................................ F-57
VIDEO CALLING CARD, INC.
Auditor's Report for Video Calling Card, Inc....................................... F-59
Balance Sheet as of December 31, 1997 and 1996..................................... F-60
Statement of Operations for the years ended December 31, 1997 and 1996............. F-61
Statement of Cash Flows for the years ended December 31, 1997 and 1996............. F-62
Statement of Stockholders' Equity from Date of Inception (April 13, 1995) to
December 31, 1997................................................................ F-63
Notes to Financial Statements...................................................... F-64
Auditor's Report for Video Calling Card, Inc....................................... F-65
Balance Sheet as of December 31, 1996 and 1995..................................... F-66
Statement of Operations for the year ended December 31, 1996 and the period from
Inception (April 13, 1995) through December 31, 1995............................. F-67
Statement of Cash Flows for the year ended December 31, 1996 and the period from
Inception (April 13, 1995) through December 31, 1995............................. F-68
Statement of Stockholders' Equity from Date of Inception (April 13, 1995) to
December 31, 1996................................................................ F-69
Notes to Financial Statements...................................................... F-70
Unaudited Balance Sheet as of March 31, 1998 and December 31, 1997................. F-71
Unaudited Statement of Operations for the three months ended March 31, 1998 and
1997............................................................................. F-73
Unaudited Statement of Cash Flows for the three months ended March 31, 1998 and
1997............................................................................. F-74
Unaudited Statement of Stockholders' Equity from Date of Inception (April 13, 1995)
to March 31, 1998................................................................ F-75
Notes to Unaudited Financial Statements............................................ F-76
</TABLE>
F-2
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The following unaudited pro forma consolidated data present the Unaudited
Pro Forma Consolidated Statement of Operations of the Company for the year ended
June 30, 1999, and the period since inception (March 4, 1998) to June 30, 1998
after giving effect to the acquisitions of Spartan Multimedia and Infobahn
Technologies (dba Digital Genesis) as if they had been consummated at the
beginning of the respective periods presented. The Company's fiscal year ends on
June 30.
The pro forma data are based on the historical consolidated statements of
the Company, Spartan Multimedia and Infobahn Technologies, giving effect to the
acquisitions using the purchase method of accounting and the assumptions and
adjustments outlined in the accompanying Notes to Unaudited Pro Forma
Consolidated Financial Statements.
The following unaudited pro forma consolidated financial data do not give
effect to anticipated expenses related to the acquisition and do not reflect
certain cost savings that management of the Company believes may be realized
following the acquisition. These savings are expected to be realized primarily
through integration of operations.
The pro forma data are provided for comparative purposes only. They do not
purport to be indicative of the results that actually would have occurred if the
acquisitions had been consummated on the dates indicated or that may be obtained
in the future. The unaudited pro forma consolidated financial data should be
read in conjunction with the Notes thereto, the audited Consolidated Financial
Statements of the Company and the Notes thereto and the audited Financial
Statements of Infobahn Technologies and Spartan Multimedia, and the Notes
thereto, all included in this registration statement.
F-3
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 4, 1998 (INCEPTION) THROUGH JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------- PRO FORMA
DIGITAL SPARTAN -------------------------------------
NETGATEWAY GENESIS MULTIMEDIA ADJUSTMENTS REFS. TOTAL
------------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Service revenue........................ $ 2,800 115,651 5,874 124,325
Operating expenses:
License fees......................... 3,822,000 -- -- 3,822,000
Depreciation and amortization........ 12,249 228 -- 99,480 1,2 111,957
Selling, general and
administrative..................... 721,210 62,030 19,360 -- 802,600
------------- ---------- --------- --------- --------- -----------
Total operating expenses......... 4,555,459 62,258 19,360 99,480 4,736,557
------------- ---------- --------- --------- --------- -----------
Income (loss) from operations.... (4,552,659) 53,393 (13,486) (99,480) (4,612,232)
Interest expense....................... 19,277 -- -- -- 19,277
------------- ---------- --------- --------- --------- -----------
Net income (loss)................ $ (4,571,936) 53,393 (13,486) (99,480) (4,631,509)
============= ========== ========= ========= ========= ===========
Basic and diluted loss per share....... $ (0.84) -- -- -- (0.81)
============= ========== ========= ========= ========= ===========
Weighted average common shares
outstanding -- basic and diluted..... 5,416,242 -- -- 400,000 3 5,721,327
============= ========== ========= ========= ========= ===========
</TABLE>
F-4
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
--------------------------- PRO FORMA
SPARTAN ---------------------------------------
NETGATEWAY MULTIMEDIA ADJUSTMENTS REFS TOTAL
-------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Service revenue.................................. $ 143,426 3,441 146,867
Operating expenses:
Depreciation and amortization.................. 257,342 -- 139,055 1 396,397
Selling, general and administrative............ 11,046,506 75,995 11,122,501
-------------- --------- --------- -------------
Total operating expenses................. 11,303,848 75,995 139,055 11,518,898
-------------- --------- --------- -------------
Loss from operations..................... (11,160,422) (72,554) (139,055) (11,372,031)
Loss on sale of equity securities................ 54,729 -- -- 54,729
Interest expense................................. 925,097 -- -- 925,097
-------------- --------- --------- -------------
Loss before extraordinary item........... (12,140,248) (72,554) (139,055) (12,351,857)
Extraordinary gain on extinguishment
of debt........................................ 1,653,232 -- -- 1,653,232
-------------- --------- --------- -------------
Net loss................................. $ (10,487,016) (72,554) (139,055) (10,698,625)
============== ========= ========= =============
Basic and diluted extraordinary gain
per share...................................... .19 -- -- .19
============== ========= ========= =============
Basic and diluted loss per share................. $ (1.18) -- -- (1.20)
============== ========= ========= =============
Weighted average common shares outstanding -
basic and diluted.............................. 8,912,041 -- -- 8,912,041
============== ========= ========= =============
</TABLE>
F-5
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD MARCH 4, 1998 (INCEPTION) THROUGH JUNE 30, 1998 AND
FOR THE YEAR ENDED JUNE 30, 1999
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited pro forma consolidated statements of operations have been
prepared to reflect the acquisition of substantially all of the assets and
liabilities of Infobahn Technologies (d/b/a Digital Genesis) and all outstanding
capital stock of Spartan Multimedia in exchange for 400,000 shares of the
Company's Common Stock valued at $400,000 and 371,429 shares of common stock of
Storesonline.com, a wholly-owned subsidiary of the Company valued at $1,392,858,
which was convertible into the Company's common stock on a one-to-one basis,
respectively, as if the transactions were effective at the beginning of the
respective periods. The transactions are accounted for under the purchase
method. To give effect to this assumption, the following adjustments were made:
1. The acquisition of Spartan Multimedia resulted in acquired technology and
trade secrets of $1,390,548, which is being amortized on a straight line
basis over a five year useful life. Additional amortization of $92,703 for
the period from March 4, 1998 (inception) to June 30, 1998 and $139,055 for
the period from July 1, 1998 until the actual acquisition date of January
15, 1999 are shown.
2. The acquisition of Infobahn Technologies resulted in an intangible asset
representing the value of acquired technology of $120,000 and goodwill
valued at $235,193, which are being amortized on a straight line basis over
useful lives of seven years and ten years, respectively. Additional
amortization of $6,777 for the period since March 4, 1998 (inception) to the
acquisition date of June 2, 1998 is shown. The impact on income taxes would
be minor due to historical losses of NetGateway.
3. The Company issued 400,000 shares of common stock valued at $400,000 to
acquire Infobahn Technologies.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Netgateway, Inc.:
We have audited the accompanying consolidated balance sheets of
Netgateway, Inc. and subsidiaries (a development stage enterprise) as of
June 30, 1999 and 1998, and the related consolidated statements of operations,
changes in shareholders' deficit and cash flows for the year ended June 30,
1999, the period March 4, 1998 (inception) through June 30, 1998 and the
cumulative period March 4, 1998 (inception) through June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Netgateway, Inc. and subsidiaries as of June 30, 1999 and 1998 and the results
of its operations and its cash flows for the year ended June 30, 1999, the
period March 4, 1998 (inception) through June 30, 1998 and the cumulative period
March 4, 1998 (inception) through June 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company's planned principal operations have commenced,
however, minimal revenues have been generated. Additionally, the Company
continues to incur net losses and has continuing financial needs. These matters
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
Los Angeles, California
August 23, 1999
F-7
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 569,472 254,597
Accounts receivable less allowance for doubtful accounts of $3,000 and $0 as of
June 30, 1999 and 1998, respectively............................................ 44,198 21,305
Note receivable from officer (note 6)............................................. 30,000 --
Short-term notes receivable, net (note 6)......................................... -- 50,000
Debt issue costs.................................................................. 336,288 --
Prepaid offering costs............................................................ 325,887 --
Other current assets.............................................................. 73,481 45,565
-------------- -----------
Total current assets............................................................ 1,379,326 371,467
Property and equipment, net (note 4)................................................ 496,536 143,384
Intangible assets, net (note 5)..................................................... 1,562,635 351,804
Other assets........................................................................ 19,853 4,897
-------------- -----------
$ 3,458,350 871,552
============== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable (note 8)......................................... $ 1,496,000 --
Convertible debentures (note 8)................................................... 200,000 --
Accounts payable.................................................................. 278,723 106,242
Accrued wages and benefits........................................................ 278,741 12,720
Accrued interest.................................................................. 44,301 130,122
Accrued liabilities............................................................... 543,632 30,000
Deferred revenue.................................................................. 81,550 --
Current portion of notes payable to related parties (note 8)...................... 1,799 2,052,159
-------------- -----------
Total current liabilities....................................................... 2,924,746 2,331,243
Notes payable to related parties, less current portion (note 8)..................... -- 367,892
-------------- -----------
Total liabilities............................................................... 2,924,746 2,699,135
-------------- -----------
Shareholders' deficit (notes 9 and 10):
Common stock, par value $.001 per share. Authorized 25,000,000 shares; issued and
outstanding 9,912,304 and 7,510,000 at June 30, 1999 and 1998, respectively..... 9,913 7,510
Additional paid-in capital........................................................ 15,639,160 2,849,163
Deferred compensation............................................................. (52,919) (112,320)
Accumulated other comprehensive loss.............................................. (3,598) --
Deficit accumulated during development stage...................................... (15,058,952) (4,571,936)
-------------- -----------
Total shareholders' deficit..................................................... 545,291 (1,827,583)
Commitments and subsequent events (notes 12 and 13)
-------------- -----------
Total liabilities and shareholders' deficit..................................... $ 3,458,254 871,552
============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD CUMULATIVE
MARCH 4, 1998 PERIOD FROM
YEAR (INCEPTION) MARCH 4, 1998
ENDED THROUGH (INCEPTION)
JUNE 30, JUNE 30, THROUGH
1999 1998 JUNE 30, 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Service revenue.................................................... $ 143,426 2,800 146,226
Operating expenses:
License fees (note 7)............................................ -- 3,822,000 3,822,000
Depreciation and amortization.................................... 257,342 12,249 269,591
Selling, general and administrative.............................. 11,046,506 721,210 11,767,716
-------------- ----------- -----------
Total operating expenses....................................... 11,303,848 4,555,459 15,859,307
-------------- ----------- -----------
Loss from operations........................................... (11,160,422) (4,552,659) (15,713,081)
Loss on sale of equity securities.................................. 54,729 -- 54,729
Interest expense................................................... 925,097 19,277 944,374
-------------- ----------- -----------
Loss before extraordinary item................................. (12,140,248) (4,571,936) (16,712,184)
Extraordinary gain on extinguishment of debt....................... 1,653,232 -- 1,653,232
-------------- ----------- -----------
Net loss....................................................... $ (10,487,016) (4,571,936) (15,058,952)
============== =========== ===========
Basic and diluted extraordinary gain per share..................... $ 0.19 -- 0.21
============== =========== ===========
Basic and diluted loss per share................................... $ (1.18) (0.84) (1.87)
============== =========== ===========
Weighted average common shares outstanding--basic and diluted...... $ 8,912,041 5,416,242 8,058,886
============== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PRICE -------------------- PAID-IN DEFERRED
DATE PER SHARE SHARES AMOUNT CAPITAL COMPENSATION
---------- ---------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash.......................... 3/98 $ .07--.33 754,545 $ 755 199,245 --
Common stock issued for services....................... 3/98 0.22 1,445,455 1,445 316,555 --
Common stock issued in exchange for shareholder's
payment of Company debt.............................. 3/98 0.50 400,000 400 199,600 --
Common stock issued to acquire license................. 3/98 0.22 1,000,000 1,000 219,000 --
Common stock issued for services....................... 4/98 0.22 100,000 100 21,900 --
Deferred compensation on stock issued for services..... 4/98 -- -- -- (14,080)
Amortization of deferred compensation.................. 4/98--6/98 -- -- -- 1,760
Common stock issued to acquire license................. 4/98 0.22 1,900,000 1,900 416,100 --
Common stock issued for services....................... 5/98 0.22 200,000 200 43,800 --
Common stock issued in exchange for shareholder's
payment of Company debt.............................. 5/98 1.00 200,000 200 199,800 --
Sale of common stock for cash.......................... 5/98--6/98 1.00 303,000 303 302,697 --
Conversion of debt to capital contribution............. 6/98 -- -- 100,000 --
Adjustment resulting from reverse acquisition.......... 6/98 450,000 450 (310) --
Shares issued in business acquisition.................. 6/98 1.00 400,000 400 399,600 --
Conversion of debt to common stock, including
interest............................................. 6/98 1.00 184,000 184 185,349 --
Stock issued for deferred compensation................. 6/98 1.00 100,000 100 99,900 (100,000)
Sale of common stock for cash.......................... 6/98 2.00 73,000 73 145,927 --
Comprehensive loss:
Net loss............................................. -- -- -- --
Total comprehesive loss................................
--------- --------- ----------- ---------
Balance at June 30, 1998............................... 7,510,000 7,510 2,849,163 (112,320)
Sale of common stock for cash.......................... 7/98--9/98 2.00 949,800 950 1,898,650 --
Exercise of warrants................................... 7/98--9/98 2.00 132,100 132 264,068 --
Warrants granted for services.......................... 10/98--6/99 2.00--5.50 -- -- 2,340,720 --
Stock compensation paid by shareholders................ 11/98 2.00 -- -- 400,000 --
Stock option compensation.............................. -- -- 233,211 (233,211)
Amortization of deferred compensation.................. -- -- -- 282,052
Forfeited stock........................................ (48,000) (48) (10,512) 10,560
Capital contributed upon extinguishment of debt........ 12/98 -- -- 200,000 --
Subsidiary convertible common stock issued in business
acquisition.......................................... 1/99--4/99 3.00--4.50 -- -- 1,392,858 --
Options issued for legal services...................... 2/99 5.50 -- -- 479,708 --
Warrants granted for debt issue costs.................. 2/99--6/99 3.50--5.50 -- -- 775,585 --
Shares issued for debenture conversion................. 3/99--5/99 2.50 320,000 320 950,680 --
Shares issued for services............................. 10/98--6/99 2.00--5.50 366,500 366 1,261,834 --
Shares issued for debt issue costs..................... 3/99 4.00 30,000 30 127,470 --
Sale of common stock for cash, net..................... 3/99--6/99 3.00-5.50 614,334 615 2,300,763 --
Cashless exercise of warrants.......................... 4/99 2,570 3 (3) --
Shares issued for technology........................... 5/99 5.00 35,000 35 174,965 --
Comprehensive loss:
Net loss............................................. -- -- -- --
Foreign currency translation adjustment.............. -- -- -- --
Total comprehensive loss...............................
--------- --------- ----------- ---------
Balance at June 30, 1999............................... 9,912,304 $ 9,913 15,639,160 (52,919)
========= ========= =========== =========
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
DURING OTHER SHAREHOLDERS'
COMPREHENSIVE DEVELOPMENT COMPREHENSIVE EQUITY
LOSS STAGE LOSS (DEFICIT)
-------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
Sale of common stock for cash.......................... -- -- 200,000
Common stock issued for services....................... -- -- 318,000
Common stock issued in exchange for shareholder's
payment of Company debt.............................. -- -- 200,000
Common stock issued to acquire license................. -- -- 220,000
Common stock issued for services....................... -- -- 22,000
Deferred compensation on stock issued for services..... -- -- (14,080)
Amortization of deferred compensation.................. -- -- 1,760
Common stock issued to acquire license................. -- -- 418,000
Common stock issued for services....................... -- -- 44,000
Common stock issued in exchange for shareholder's
payment of Company debt.............................. -- -- 200,000
Sale of common stock for cash.......................... -- -- 303,000
Conversion of debt to capital contribution............. -- -- 100,000
Adjustment resulting from reverse acquisition.......... -- -- 140
Shares issued in business acquisition.................. -- -- 400,000
Conversion of debt to common stock, including
interest............................................. -- -- 185,533
Stock issued for deferred compensation................. -- -- --
Sale of common stock for cash.......................... -- -- 146,000
Comprehensive loss:
Net loss............................................. (4,571,936) (4,571,936) -- (4,571,936)
----------
Total comprehesive loss................................ (4,571,936)
==========
--------- ---------- -----------
Balance at June 30, 1998............................... (4,571,936) -- (1,827,583)
Sale of common stock for cash.......................... -- -- 1,899,600
Exercise of warrants................................... -- -- 264,200
Warrants granted for services.......................... -- -- 2,340,720
Stock compensation paid by shareholders................ -- -- 400,000
Stock option compensation.............................. -- -- --
Amortization of deferred compensation.................. -- -- 282,052
Forfeited stock........................................ -- -- --
Capital contributed upon extinguishment of debt........ -- -- 200,000
Subsidiary convertible common stock issued in business
acquisition.......................................... -- -- 1,392,858
Options issued for legal services...................... -- -- 479,708
Warrants granted for debt issue costs.................. -- -- 775,585
Shares issued for debenture conversion................. -- -- 951,000
Shares issued for services............................. -- -- 1,262,200
Shares issued for debt issue costs..................... -- -- 127,500
Sale of common stock for cash, net..................... -- -- 2,301,378
Cashless exercise of warrants.......................... -- -- --
Shares issued for technology........................... -- -- 175,000
Comprehensive loss:
Net loss............................................. (10,487,016) (10,487,016) -- (10,487,016)
Foreign currency translation adjustment.............. (3,598) -- (3,598) (3,598)
----------
Total comprehensive loss............................... (10,490,614)
==========
--------- ---------- -----------
Balance at June 30, 1999............................... (15,058,952) (3,598) (533,604)
========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
MARCH 4, 1998 MARCH 4, 1998
(INCEPTION) (INCEPTION)
YEAR ENDED THROUGH THROUGH
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
------------- ------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(10,487,016) (4,571,936) (15,058,952)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 257,432 12,249 269,591
Common stock issued for services............................... 1,262,200 371,680 1,633,880
Amortization and write-off of license fees..................... -- 3,822,000 3,822,000
Loss on sale of equity securities.............................. 54,729 -- 54,729
Amortization of deferred compensation.......................... 282,052 -- 282,052
Gain on extinguishment of debt................................. (1,653,232) -- (1,653,232)
Stock compensation paid by shareholders........................ 400,000 -- 400,000
Interest expense on debt converted to equity................... 236,488 19,277 255,765
Interest expense on warrants issued as debt issue costs........ 535,535 -- 535,535
Amortization of debt issue costs............................... 144,000 -- 144,000
Options and warrants issued for services....................... 2,820,428 -- 2,820,428
Provision for doubtful accounts................................ 26,876 25,000 51,876
Write-off of note receivable................................... 800,000 -- 800,000
Changes in assets and liabilities:
Accounts receivable.......................................... (49,769) (2,000) (51,769)
Prepaid offering costs....................................... (325,887) -- (325,887)
Other assets................................................. (76,668) (45,422) (122,090)
Accounts payable and accrued expenses........................ 1,220,010 116,033 1,336,043
----------- --------- ------------
Net cash used in operating activities...................... (4,552,912) (253,119) (4,806,031)
----------- --------- ------------
Cash flows from investing activities:
Cash assumed in business acquisition........................... 4,781 3,321 8,102
Loan for notes receivable...................................... (830,000) (75,000) (905,000)
Repayment of notes receivable.................................. 50,000 -- 50,000
Purchase of equity securities.................................. (100,733) -- (100,733)
Proceeds from sale of equity securities........................ 46,004 -- 46,004
Purchase of property and equipment............................. (250,579) (102,034) (352,613)
----------- --------- ------------
Net cash used in investing activities...................... (1,080,527) (173,713) (1,254,240)
----------- --------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock......................... 4,253,360 649,000 4,902,360
Proceeds from exercise of warrants............................. 264,200 -- 264,200
Proceeds from issuance of notes payable to related parties..... 100,000 132,429 232,429
Proceeds from issuance of notes payable and
convertible debentures....................................... 2,506,000 -- 2,506,000
Cash paid for debt issue costs................................. (181,018) -- (181,018)
Repayment of notes payable to related parties.................. (990,630) (100,000) (1,090,630)
----------- --------- ------------
Net cash provided by financing activities.................. 5,951,912 681,429 6,633,341
----------- --------- ------------
Net increase in cash....................................... 318,473 254,597 573,070
Cash at beginning of period........................................ 254,597 -- --
Effect of exchange rate changes on cash balances................... (3,598) -- (3,598)
----------- --------- ------------
Cash at end of period.............................................. $ 569,472 254,597 569,472
=========== ========= ============
Supplemental schedule of noncash activities:
Issuance of common stock for business acquisition................ $ -- 400,000 400,000
Issuance of convertible stock in business acquisition............ 1,392,858 -- 1,392,858
Accrued asset purchases.......................................... -- 27,743 27,743
Conversion of debt to common stock............................... 800,000 284,000 1,084,000
Common stock issued in exchange for shareholders' payment of
Company debt................................................... -- 400,000 400,000
Capital contributed upon extinguishment of debt................ 200,000 -- 200,000
Common stock issued for internal-use software.................. 175,000 -- 175,000
Warrants issued for debt issue costs........................... 723,203 -- 723,203
Stock issued for debt issue costs.............................. 77,500 -- 77,500
=========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Netgateway, Inc. and subsidiary ("Netgateway" or the "Company"), was formed
on March 4, 1998 as a Nevada corporation. Netgateway is an internet commerce
and connectivity company which provides turn-key solutions designed to
enable companies of any size to extend their business to the internet for a
wide variety of purposes, including the advertising and sale of products or
services by retailers and the conduct of commercial transactions between
business enterprises.
The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company is devoting
substantially all of its present efforts to developing technology. Planned
principal operations have commenced, but have not produced significant
revenue. Only minimal service and consulting revenues were generated through
June 30, 1999.
On June 2, 1998, Video Calling Card, Inc. ("VCC"), a Nevada public shell
corporation, acquired 100 percent of the outstanding common stock of
Netgateway in exchange for 5,900,000 shares of common stock of VCC.
Immediately prior to the acquisition, VCC had 450,000 shares of common stock
outstanding and Netgateway had 590,000 shares of common stock outstanding.
Since the shareholders of Netgateway received the majority voting interests
in the combined company, Netgateway is the acquiring enterprise for
financial reporting purposes. The transaction was recorded as a reverse
acquisition using the purchase method of accounting whereby equity of
Netgateway was adjusted for the fair value of the acquired tangible net
assets of VCC. The historical financial statements of Netgateway since
March 4, 1998 (inception) have been adjusted retroactively to reflect the
equivalent number of shares received in the business combination prior to
the reverse acquisition. The 450,000 shares of common stock issued in the
reverse acquisition have been included in the weighted-average common shares
outstanding since the date of acquisition, June 2, 1998.
Also on June 2, 1998, the Company acquired certain assets and liabilities of
Infobahn Technologies, LLC (d/b/a Digital Genesis), a California limited
liability company, in exchange for 400,000 shares of common stock of the
Company valued at $400,000. The consideration was allocated based on the
relative fair values of the tangible and intangible assets and liabilities
acquired, including acquired technology of $120,000, with the excess
consideration of $235,193 recorded as goodwill. The operations of Digital
Genesis are included in the consolidated statements of operations of the
Company since the date of acquisition, June 2, 1998.
In January 1999, the Company acquired 100% of the outstanding stock of
Spartan Multimedia, Inc., a Canadian corporation, in exchange for 185,715
shares of common stock of StoresOnline.com, LTD, a wholly-owned Canadian
subsidiary valued at $557,145. The shares are convertible on a one-to-one
basis into common stock of the Company. The issuance of an additional
185,714 shares was contingent upon the attainment of certain performance
standards in future periods. In April 1999, the Board of Directors approved
the issuance of the contingent shares and waived the performance standards.
Accordingly, the consideration increased to $1,392,858. The acquisition of
Spartan Multimedia, Inc. was recorded using the purchase method of
accounting. The consideration was allocated based on the relative fair
values of the tangible and intangible assets and liabilities acquired. The
operations of Spartan Multimedia, Inc. are included in the consolidated
statement of operations of the Company from January 15, 1999 through
F-12
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS (CONTINUED)
June 30, 1999. Unaudited pro forma consolidated results of operations are
summarized below to reflect the acquisition of Spartan Multimedia, Inc. as
if it had occurred on July 1, 1998:
<TABLE>
<S> <C>
Revenue......................................................... $ 146,867
==========
Net loss........................................................ (10,698,625)
==========
Loss per share.................................................. (1.20)
==========
</TABLE>
(2) LIQUIDITY
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course
of business. As of the date of this report, the Company's planned principal
operations have commenced, however, minimal revenues have been generated.
The Company has relied upon private placements of its stock and issuances of
debt to generate funds to meet its operating needs and plans to continue
pursuing financing in this manner during the next year. However, there are
no assurances that such financing will be available when and as needed to
satisfy current obligations. As such, substantial doubt exists as to whether
the Company will continue as a going concern.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(B) REVENUE RECOGNITION
Revenue generated from consulting services is recognized as services are
provided. Web-site development revenues are recognized upon completion of
each project. Services billed in advance are recorded as deferred revenue
and recognized when revenue is earned.
(C) INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
5 to 7
Acquired technology............................................ years
Goodwill....................................................... 10 years
</TABLE>
F-13
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, is comprised of computer and
office equipment. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets ranging from 3 to
5 years.
(E) RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development costs are expensed as incurred.
(F) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to future undiscounted operating cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.
(H) FINANCIAL INSTRUMENTS
The carrying values of cash, accounts receivable, notes receivable,
accounts payable, accrued liabilities and current portion of notes
payable at June 30, 1999 and 1998 approximated fair value due to the
short maturity of those instruments. The fair value of the notes
receivable from and payable to related parties could not be estimated due
to the nature of the borrowings. All financial instruments are held for
purposes other than trading.
(I) ACCOUNTING FOR STOCK OPTIONS
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations,
in accounting for its fixed plan employee stock options. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.
Compensation
F-14
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expense related to stock options granted to non-employees is accounted
for under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," whereby compensation expense
is recognized over the vesting period based on the fair value of the
options on the date of grant.
(J) COMPREHENSIVE INCOME
SFAS 130, "Reporting Comprehensive Income" (SFAS No. 130) establishes
standards for reporting and displaying comprehensive income (loss) and
its components in a full set of general-purpose financial statements.
This statement requires that an enterprise classify items of other
comprehensive income (loss) by their nature in a financial statement and
display the accumulated balance of other comprehensive income (loss)
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. The Company has
components of other comprehensive income (loss), which are classified in
the statement of shareholders' deficit.
(K) BUSINESS SEGMENTS AND RELATED INFORMATION
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) establishes standards for the way
public business enterprises are to report information about operating
segments in annual financial statements and requires enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. Is also establishes standards for related
disclosure about products and services, geographic areas and major
customers. It replaces the "industry segment" concept of SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," with a
"management approach" concept as the basis for identifying reportable
segments. The Company has only one operating segment. The Company formed
its wholly-owned Canadian subsidiary, StoresOnline.com, in January 1999.
Prior to that time, the Company only had operations in the United States
All revenues during the year ended June 30, 1999 and the period March 4,
1998 (inception) through June 30, 1998 were generated in the United
States. Substantially all of the Company's long-lived assets were located
in the United States at June 30, 1999 and 1998.
(L) INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115
requires investments to be classified based on management's intent in one
of the three categories: held-to-maturity securities, available-for-sale
securities and trading securities. Held-to-maturity securities are
recorded at amortized cost. Available-for-sale securities are recorded at
fair value with unrealized gains and losses reported as a separate
component of shareholders' equity and comprehensive income (loss).
Trading securities are recorded at market value with unrealized gains and
losses reported in operations. The Company's investment securities have
been classified as available-for-sale.
F-15
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Canadian subsidiary,
StoresOnline.com, have been translated into U.S. dollars from its
functional currency in the accompanying consolidated financial statements
in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Balance sheet accounts of
StoresOnline.com are translated at year-end exchange rates while income
and expenses are translated at weighted-average exchange rates for the
year. Translation gains or losses that related to StoresOnline.com's net
assets are shown as a separate component of shareholders' equity
(deficit) and comprehensive income (loss). There were no gains or losses
resulting from realized foreign currency transactions (transactions
denominated in a currency other than the entities' functional currency)
during the year ended June 30, 1999 and the period March 4, 1998
(inception) through June 30, 1998.
(N) LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding during the period in accordance with SFAS No. 128
"Earnings Per Share". Diluted earnings (loss) per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings (loss) per share is computed similarly to
fully diluted earnings (loss) per share pursuant to Accounting Principles
Board (APB) Opinion No. 15. There were 3,840,956 options and 1,750,100
warrants to purchase shares of common stock that were outstanding during
the year ended June 30, 1999 which were not included in the computation
of diluted loss per share because the impact would have been
antidilutive. There were 200,000 options and 73,000 warrants to purchase
shares of common stock that were outstanding during the period March 4,
1998 (inception) through June 30, 1998 which were not included in the
computation of diluted loss per share because the impact would have been
antidilutive.
(O) COSTS OF START-UP ACTIVITIES
Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the Costs
of Start-Up Activities," the Company expenses all the costs of start-up
activities as incurred.
(P) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and the
reporting of revenues and expenses during the reporting periods to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(Q) RECLASSIFICATIONS
Certain amounts have been reclassified to conform with current year
presentation.
F-16
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment balances at June 30, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Computers and office equipment......................................... $ 583,021 152,244
Less accumulated depreciation.......................................... (86,485) (8,860)
---------- ---------
496,536 143,384
========== =========
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets balances at June 30, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
Acquired technology.................................................. $ 1,510,548 120,000
Goodwill............................................................. 235,193 235,193
------------ ---------
1,745,741 355,193
Less accumulated amortization........................................ (183,106) (3,389)
------------ ---------
$ 1,562,635 351,804
============ =========
</TABLE>
(6) NOTES RECEIVABLE AND NOTES RECEIVABLE FROM OFFICER
During the period March 4, 1998 (inception) through June 30, 1998, the
Company issued a $50,000 note receivable to a customer which was repaid
during the year ended June 30, 1999. In July 1998 and August 1998, the
Company advanced $800,000 to an entity with which the Company was in merger
discussions. Certain Company officers and directors were minor shareholders
of the potential merger entity. The merger was not consummated and the
advance was deemed uncollectible in December 1998 and written-off. During
June 1999, the Company issued its chief executive officer, Keith Freadhoff,
a non-interest bearing $30,000 note receivable. The note was repaid in
July 1999.
(7) LICENSE AGREEMENTS
In March 1998, the Company entered into a sublicense agreement related to
proprietary courseware with Training Resources International (TRI), which is
wholly-owned by Michael Khaled, a stockholder of the Company, in exchange
for the assumption of TRI's obligation of $1,600,000 to the original
licensor, ProSoft I-Net Solutions, Inc. (ProSoft). Michael Khaled personally
guaranteed the repayment of the Company's obligation under the sublicense
agreement with TRI to ProSoft. TRI entered into the original license
agreement with ProSoft in January 1998.
In April 1998, the Company entered into a sublicense agreement related to
proprietary courseware with S.T.E.P.S., Inc. (Steps), whose primary
stockholder is Scott Beebe, a stockholder and director of the Company, in
exchange for (1) the assumption of Steps' remaining obligation of $1,500,000
to the original licensor, ProSoft, (2) the assumption of Step's obligation
of $200,000 to Vision Holdings Inc. (Vision), an unrelated entity, which had
advanced funds to Steps, and (3) the
F-17
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) LICENSE AGREEMENTS (CONTINUED)
issuance of 1,000,000 shares of common stock valued at $220,000 to Steps.
Scott Beebe personally guaranteed the repayment of the Company's obligation
under the sublicense agreement with Steps to ProSoft. Additionally, the
Company acquired supplies, books and other materials related to the licensed
technology from Vision in exchange for $84,000. The Company had previously
entered into a separate loan agreement for $100,000 with Vision. The
Company's chief executive officer, Keith Freadhoff, was the chief executive
officer at ProSoft when the original license agreement with Steps was
entered into. Don Danks is a stockholder of the Company and was an officer
of ProSoft at the time the original license agreements were entered into.
In April 1998, the Company converted the $300,000 obligation to Vision into
1,900,000 shares of common stock, valued at $418,000. As a result, license
fees of $418,000 were recorded for the incremental increase of the stock
exchanged for the note payable cancellation.
In June 1998, the Company changed its business plan and began focusing on
developing technology to enable businesses and other organizations to
conduct commerce over the internet. Therefore, the Company determined that
the license fees would not ultimately be recoverable. Accordingly, the costs
of acquiring the sub-license agreements and related supplies are included as
license fees expense in the accompanying consolidated statements of
operations.
(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE
During December 1998 and January 1999, the Company issued $1,000,000 of
convertible debentures bearing interest at the 90-day Treasury Bill rate
plus 4 percent and issued 274,350 detachable stock purchase warrants valued
at $405,395. The debentures are convertible into the Company's common stock
at $2.50 per share at the Company's option. The Company recorded interest
expense of $151,000 related to the beneficial conversion feature. The
debentures are due in December 1999. As of June 30, 1999, $800,000 of the
debentures had been converted into 320,000 shares of common stock. The
convertible debentures are secured by the Company's accounts receivable and
intellectual property.
In March 1999, Keith Freadhoff, the chief executive officer of the Company,
loaned the Company $100,000 which is due within 10 days of the close of
bridge financing. In March 1999, the Company issued $160,000 of non-interest
bearing notes payable to third parties, which are due within 10 days of the
close of bridge financing. The notes were repaid in June 1999.
In May and June 1999, the Company obtained bridge financing whereby 12%
senior notes payable and 288,000 shares of common stock were issued
generating proceeds of $2,592,000, net of $288,000 of issuance costs. The
senior notes payable are due the earlier of April 30, 2000 or upon the close
of a public sale of the Company's common stock. The Company also granted
144,000 warrants to purchase an equivalent number of shares of common stock
at an exercise price of $10 per share as additional issuance costs. The
warrants are exercisable for a period of four years commencing May 18, 2000.
The fair value of the warrants on the dates of issuance was estimated to be
$301,300 using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; risk-free interest rate of 5%; volatility
of 100% and an expected life of 2 years. The net proceeds from the bridge
financing were allocated to the senior notes payable and common stock based
on their relative fair values, taking into consideration recent debt and
equity
F-18
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE (CONTINUED)
transactions. Accordingly, $1,346,000 was recorded as notes payable,
$1,488,952 as equity, net of $346,349 of stock issuance costs, and $302,952
as debt issuance costs. Under the Securities Act, the rules and regulations
under the Securities Act, and the interpretations of the Commission, we may
be required to offer rescission to investors in our May through
September 1999 private placement. If the Company is required to rescind the
May through September private placement in its entirety, the Company would
be required to refund all of the gross proceeds of the May through September
private placement to the investors. Even following the repayment of the
notes, based on the Securities Act, the rule and regulations under the
Securities Act, and the interpretations of the Commission, the investors in
the May through September private placement may have the right to require
the Company to repurchase the shares of common stock which they received in
the May through September private placement if they can successfully argue
that those shares were issued in lieu of a higher interest rate on those
notes.
In June 1999, the Company issued a 12% senior note payable of $150,000 and
15,000 shares of common stock valued at $75,000 as settlement of a legal fee
obligation. The note is due the earlier of April 30, 2000 or upon the close
of a public sale of the Company's common stock. The Company also granted
3,750 warrants to purchase an equivalent number of shares of common stock at
an exercise price of $10 per share. The warrants are exercisable for a
period of four years commencing May 18, 2000. The fair value of the warrants
on the dates of issuance was estimated to be $7,098 using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rate of 5%; volatility of 100% and an expected life of
2 years. As a result, $7,098 of additional legal expense was recorded in the
accompanying consolidated financial statements.
Notes payable and notes payable to related parties at June 30, 1999 and 1998
consists of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
12% senior notes payable due the earlier of April 30, 2000 or upon the close of a
public sale of the Company's common stock...................................... $ 1,496,000 --
Non-interest bearing note payable to ProSoft I-Net Solutions, Inc. under license
agreements, maturing through October 15, 1998.................................. -- 1,100,000
Non-interest bearing note payable to ProSoft I-Net Solutions, Inc. under license
agreements, payable in quarterly principal and interest installments of
$200,000 and maturing through December 31, 1999................................ -- 1,287,622
Non-interest bearing note payable to an officer and shareholder, due within
10 days of the close of bridge financing....................................... 1,799 32,429
------------ -----------
1,497,799 2,420,051
Less current portion............................................................. 1,497,799 (2,052,159)
------------ -----------
$ -- 367,892
============ ===========
</TABLE>
During the period from March 4, 1998 (inception) through June 30, 1998, an
officer and shareholder loaned the Company $132,429 of which $100,000 was
converted into a capital
F-19
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE (CONTINUED)
contribution in June 1998. During the year ended June 30, 1999, the Company
repaid $30,630 of the note payable.
The non-interest bearing note payable to ProSoft I-Net Solutions, Inc. under
license agreements due December 31, 1999, is net of imputed interest of
$112,378 at June 30, 1998.
In August 1998, the notes payable agreements to ProSoft I-Net
Solutions, Inc. (ProSoft) aggregating $2,387,622 were amended whereby the
scheduled principal payments of $2,100,000 and $400,000 due in fiscal years
1999 and 2000, were changed to $1,800,000 and $700,000, respectively. During
the year ended June 30, 1999, the Company repaid $700,000 of the notes
payable to ProSoft. In December 1998, ProSoft released the Company of its
remaining obligation under the notes payable agreements. As of
December 1998, the Company recognized $35,488 of imputed interest as
interest expense. The remaining imputed interest balance was expensed upon
extinguishment of the debt in December 1998. Additionally, Michael Khaled
and Scott Beebe, who personally guaranteed repayment of the Company's
obligations to ProSoft, paid ProSoft $200,000 in the aggregate to terminate
their individual personal guarantees of the notes payable which was recorded
as a capital contribution upon extinguishment of debt. Accordingly, the
Company recognized $1,653,232 as gain on extinguishment of debt during the
year ended June 30, 1999.
(9) SHAREHOLDERS' EQUITY (DEFICIT)
During the period March 4, 1998 (inception) through June 30, 1998, the
Company issued 1,645,455 shares of common stock valued at $362,000 to
certain officers and employees in exchange for compensation. The shares
vested immediately upon grant. In April 1998, the Company granted 100,000
shares of common stock under a consulting agreement in exchange for services
valued at $22,000. Compensation expense of $7,920 was recognized for the
value of the shares which vested immediately upon grant. Under the
agreement, the Company may repurchase up to 64,000 shares of the common
stock issued to the consultant. The shares eligible for repurchase vest
ratably over a 24 month period upon performance of services under the
consulting agreement. Deferred compensation of $14,080 was recorded in the
accompanying consolidated statement of changes in shareholders' deficit to
reflect the unearned compensation. During the period March 4, 1998
(inception) through June 30, 1998, 8,000 of the shares eligible for
repurchase vested resulting in $1,760 of compensation. During the year ended
June 30, 1999, 8,000 of the shares eligible for repurchase vested and the
consulting agreement was subsequently canceled. As a result, $1,760 of
additional compensation was recorded and the 48,000 remaining unvested
common shares were forfeited.
In June 1998, the Company issued 100,000 shares of common stock to an
employee in exchange for services valued at $100,000. Half of the shares
vested on July 1, 1998 with the remaining shares vesting ratably over a
12 month period. Accordingly, deferred compensation of $100,000 was recorded
at June 30, 1998. During the year ended June 30, 1999, the 100,000 shares
vested resulting in compensation of $100,000.
During the period March 4, 1998 (inception) through June 30, 1998, Michael
Khaled, Don Danks and Lynn Turnbow, shareholders of the Company, paid, on
behalf of the Company, $400,000 of the
F-20
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
scheduled payments under the $3,000,000 notes payable to ProSoft in exchange
for 600,000 shares of common stock valued at $400,000.
In March 1998, an officer and shareholder of the Company, Keith Freadhoff,
loaned the Company $100,000. In June 1998, the note was contributed to
capital.
In June 1998, $184,000 of notes payable to third parties was converted into
184,000 shares of common stock valued at $185,333, including $1,533 of
accrued interest.
During the period March 4, 1998 (inception) through June 30, 1998, the
Company sold 1,057,545 shares of common stock for $503,000 in cash. In
June 1998, the Company sold 73,000 units in exchange for $146,000. In
July 1998 through September 1998, the Company sold 949,800 units in exchange
for $1,899,600. Each unit consisted of one share of common stock and one
warrant to purchase an equivalent number of shares of common stock at an
exercise price of $4.00. The warrants were exercisable at any time prior to
September 1, 1998. The estimated fair value of the warrants on the date of
the grant was estimated to be $.02 using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%; risk-free
interest rate of 5.16%; volatility of 100%; and an expected life of two
months. The warrants were subsequently repriced to $2.00 per share and the
exercise date was extended to October 1, 1998. The estimated fair value of
the warrants on the date of repricing remained consistent with the fair
value on date of grant. In October 1998, 132,100 warrants were exercised to
purchase 132,100 shares of common stock generating proceeds of $264,200.
During the year ended June 30, 1999, the Company issued warrants as
consideration for various consulting fees and debt issue costs associated
with the convertible debentures. The warrants were exercisable within two
years from the dates of issuance. The fair value of the warrants on the
dates of issuance was estimated to be $3,169,839 using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rate of 5%; volatility of 100% and an expected life of
2 years. Accordingly, compensation expense of $2,394,254, debt issuance
costs of $187,668 and interest expense of $535,535 was recorded in the
accompanying consolidated financial statements.
During the year ended June 30, 1999, the Company issued 366,500 shares of
common stock valued at $1,262,200 as payment of consulting and legal
services. In May 1999, the Company issued 35,000 shares of common stock
valued at $175,000 to acquire internal-use software from UnitNetImaging
(Shopping Planet). The value of the technology was capitalized in the
accompanying consolidated financial statements.
During March 1999, the Company issued 30,000 shares of common stock valued
at $127,500 as payment of debt issuance costs associated with the issuance
of $160,000 of notes payable.
In November 1998, the Company entered into a settlement agreement with
Michael Khaled, a shareholder of the Company, whereby four shareholders of
the Company contributed 200,000 shares of common stock valued at $400,000 to
Mr. Khaled. Additionally, the Company granted warrants to purchase 100,000
shares of common stock to Mr. Khaled and warrants to purchase 200,000 shares
of common stock to the four shareholders who contributed their stock. The
fair value of the warrants on the issuance date was estimated to be $420,000
using the Black-Scholes
F-21
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SHAREHOLDERS' EQUITY (DEFICIT)
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rate of 5%; volatility of 100% and an expected life of
2 years. Accordingly, compensation expense of $820,000 was recognized in the
accompanying consolidated financial statements.
From March 1999 through May 1999, the Company sold 326,334 shares of common
stock in exchange for cash of $979,000.
In April 1999, the Company issued 2,570 shares of common stock upon the
cashless exercise of 25,000 warrants at an exercise price of $12.00 per
share.
(10) STOCK OPTIONS
In June 1998, the Board of Directors approved, for future grants, 500,000
options to acquire an equivalent number of shares of common stock at an
exercise price of $1 per share to certain senior management. No options were
granted as of June 30, 1998.
In June 1998, the Board of Directors granted 100,000 options to acquire an
equivalent number of shares of common stock at an exercise price of $6 per
share as consideration for legal fees. The options vest ratably as services
are provided and expire on April 30, 2005. As of June 30, 1998, only a
minimal amount of legal services had been provided under the agreement.
During the year ended June 30, 1999, under the anti-dilution clause of the
agreement, the number of options increased to 240,000 and the exercise price
was decreased to $2.50 per share. As a result, compensation for the fair
value of the options aggregating $479,708 was recorded. The fair value of
the options on the date of repricing was estimated using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rate of 5%; volatility of 100% and an expected life of
1.5 years.
In June 1998, the Company granted a consultant 100,000 options to purchase
an equivalent number of shares of common stock at an exercise price of $3.50
per share as compensation for services. The options vest upon the consultant
achieving certain sales goals related to the sale of training courses under
the ProSoft license agreement by June 1999. The options expire on June 1,
2003. As of June 30, 1998, no options had been earned under the agreement.
The fair value of the options on the date of the grant was estimated to be
$.59 per share using the Black-Scholes option-pricing model with the
following assumptions: dividend yield of 0%; risk-free interest rate of
5.50%; volatility of 100%; and an expected life of 5 years. Subsequent to
June 30, 1998, these options were canceled.
In July 1998, the Board of Directors adopted the 1998 Stock Compensation
Program ("Program") which consists of an Incentive Stock Option Plan,
Non-Qualified Stock Option Plan, Restricted Share Plan, Employee Stock
Purchase Plan, Non-Employee Director Stock Option Plan, Stock Appreciation
Rights Plan and Other Stock Rights Plan. An aggregate of 1,000,000 shares
were reserved for issuance under the Program. During the year ended
June 30, 1999, the Company granted 998,301 options under the Program at
exercise prices greater than and below the estimated market price of the
Company's common stock on the date of grant ranging from $2.17 to $5.34 per
share. As a result, $180,292 of compensation expense was recognized during
the year ended June 30, 1999. The weighted-average fair value of options
granted during the year ended June 30, 1999 under the Program was $2.07 per
share. As of June 30, 1999, 1,699 options were available for
F-22
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) STOCK OPTIONS (CONTINUED)
future grants. The Company applies APB Opinion No. 25 in accounting for
stock options granted to employees. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below for the year ended June 30, 1999:
<TABLE>
<S> <C>
Net loss--as reported.......... $(10,487,016)
Net loss--pro forma............ (13,000,791)
===========
</TABLE>
In December 1998, the Board of Directors adopted the 1998 Stock Option Plan
for Senior Executives. An aggregate of 5,000,000 shares were reserved for
issuance under the Plan. As of June 30, 1999, 2,596,656 options had been
granted under the Plan at an exercise prices ranging from $2.50 to $6.50 per
share. Because the grant price is greater than the market prices of the
Company's common stock on the date of grant, there was no intrinsic value on
the date of grant. The shares begin vesting on January 1, 2000. Accordingly,
compensation expense related to these stock option grants during the year
ended June 30, 1999 is the same under APB 25 and SFAS 123. The
weighted-average fair value of the options granted under the Plan during the
year ended June 30, 1999 was $1.81 per share. As of June 30, 1999, there
were 2,403,333 options available for future grants under the Plan.
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- -----------------
<S> <C> <C>
Balance at March 4, 1998.................................. -- $ --
Granted................................................... 200,000 4.75
------------
Balance at June 30, 1998.................................. 200,000 4.75
Granted................................................... 3,734,968 3.85
Canceled.................................................. (100,000) 3.50
------------
Balance at June 30, 1999.................................. 3,834,968 3.80
============ =========
</TABLE>
The following table summarizes information about shares under option at
June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE PRICE
- ---------------- ----------- ---------------- --------------- ----------- -------------
<C> <C> <S> <C> <C> <C>
2$.46 to 3.71... 1,808,636 9.01 years $ 2.56 670,930 $ 2.50
3.78 to 6.06... 1,824,406 9.53 years 4.76 212,880 4.11
6.15 to 7.75... 191,926 9.83 years 6.58 35,730 6.75
13.30.......... 10,000 9.75 years 13.30 833 13.30
--------- ---------
3,834,968 3.80 920,373 3.05
========= ========= ========= =========
</TABLE>
F-23
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES
Income tax expense for the period March 4, 1998 (inception) through
June 30, 1998 and the year ended June 30, 1999 represents the California
state minimum franchise tax and is included in selling, general and
administrative expenses in the accompanying consolidated statement of
operations.
Income tax expense attributable to loss from operations during the year
ended June 30, 1999 and the period March 4, 1998 (inception) through
June 30, 1998, differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to loss from operations as a result of
the following:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Computed "expected" tax benefit.................................. $ (3,565,585) (1,554,458)
Decrease (increase) in income taxes resulting from:
State and local income tax benefit, net of federal effect........ (618,227) (278,196)
Change in the valuation allowance for deferred tax assets........ 4,139,728 1,859,974
Other............................................................ 46,479 (26,520)
------------- -----------
Income tax expense............................................. $ 2,400 800
============= ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 4,620,070 1,669,316
Stock compensation expense..................................... 1,128,171 179,872
Intangible assets, principally due to differences in
amortization................................................. 16,902 10,290
Deferred compensation.......................................... 112,821 --
Accounts receivable principally due to allowance for doubtful
accounts..................................................... 1,200 --
Accrued expenses............................................... 106,640 --
Property and equipment, principally due to differences in
depreciation................................................. -- 496
------------- -----------
Total gross deferred tax assets.............................. 5,985,804 1,859,974
Less valuation allowance..................................... (5,968,503) (1,859,974)
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation................................................. (17,301) --
------------- -----------
Net deferred tax assets...................................... $ -- --
============= ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
F-24
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
the periods in which those temporary differences become deductible.
Management considers the schedule reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax assets, the Company
will need to generate future taxable income of approximately $11,550,000
prior to the expiration of the carryforward period in 2014. Based on the
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
that the Company will not realize the benefits of these deductible
differences. Such potential future benefits have been fully reserved, and
accordingly, there are no net deferred tax assets.
As of June 30, 1999, the Company had approximately $11,550,400 and
11,548,000 of net operating loss carryforwards available for Federal and
state income tax purposes, respectively, which expire between 2006 and 2018.
The ultimate realization of the net operating loss carryforwards will be
limited by Section 382 of the Internal Revenue Code as a result of a change
of control.
(12) LEASE COMMITMENTS
The Company has noncancelable operating leases for office space which expire
at various dates through July 2001. Minimum annual commitments under
noncancelable operates leases are $424,700, $237,300, $135,300 and $10,000
during the years ended June 30, 2000, 2001, 2002 and 2003, respectively. All
other operating leases are month-to-month arrangements.
Rent expense amounted to $115,237 and $18,367 during the year ended
June 30, 1999 and during the period March 4, 1998 (inception) through
June 30, 1998, respectively.
(13) SUBSEQUENT EVENTS
In July 1999, the Board of Directors adopted the 1999 Stock Option Plan for
Non-Executives. An aggregate of 2,000,000 shares were reserved for issuance
under the Plan. From July 1, 1999 through August 10, 1999, the Company
granted 367,266 options under the Plan at exercise prices ranging from $5.25
to $14.50 per share. The Company also granted 200,000 options under the 1998
Executive Plan in July 1999 at an exercise price of $8.18 per share.
In July 1999, the Company entered into a Cable Reseller and Mall agreement
with MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued
to MediaOne 50,000 shares of common stock and warrants to purchase 200,000
shares of common stock. The exercise price of the warrants is dependent upon
the market price of the Company's common stock on the date that the warrants
are earned under certain performance criteria.
From July 21, 1999 through August 18, 1999, the Company issued $503,000 of
12% senior notes payable which are due the earlier of April 30, 2000 or upon
the close of a public sale of the Company's common stock and 50,300 shares
of the Company's common stock in exchange for $503,000. The net proceeds
were allocated to the notes payable and common stock based on their relative
fair values. Under the Securities Act, the rules and regulations under the
Securities Act, and the interpretations of the Commission, we may be
required to offer rescission to investors in our May through September 1999
private placement. If the Company is required to rescind the May through
September private placement in its entirety, the Company would be required
to refund all of the gross proceeds of the May through September private
placement to the investors.
F-25
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) SUBSEQUENT EVENTS (CONTINUED)
Even following the repayment of the notes, based on the Securities Act, the
rule and regulations under the Securities Act, and the interpretations of
the Commission, the investors in the May through September private placement
may have the right to require the Company to repurchase the shares of common
stock which they received in the May through September private placement if
they can successfully argue that those shares were issued in lieu of a
higher interest rate on those notes.
(14) SUBSEQUENT EVENT--UNAUDITED
From August 24, 1999 through September 24, 1999, the Company issued
$3,075,500 of 12% senior notes payable which are due the earlier of April
30, 2000 or upon the close of a public sale of the Company's common stock
and 307,550 shares of the Company's common stock in exchange for $3,075,500.
The net proceeds were allocated to the notes payable and common stock based
on their relative fair values. Under the Securities Act, the rules and
regulations under the Securities Act, and the interpretations of the
Commission, we may be required to offer rescission to investors in our May
through September 1999 private placement. If the Company is required to
rescind the May through September private placement in its entirety, the
Company would be required to refund all of the gross proceeds of the May
through September private placement to the investors. Even following the
repayment of the notes, based on the Securities Act, the rule and
regulations under the Securities Act, and the interpretations of the
Commission, the investors in the May through September private placement may
have the right to require the Company to repurchase the shares of common
stock which they received in the May through September private placement if
they can successfully argue that those shares were issued in lieu of a
higher interest rate on those notes.
F-26
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 956,636
Accounts receivable.............................................................................. 104,687
Debt issue costs................................................................................. 439,956
Prepaid offering costs........................................................................... 617,791
Prepaid advertising.............................................................................. 300,000
Other current assets............................................................................. 22,381
-------------
Total current assets........................................................................... 2,441,451
Property and equipment, net........................................................................ 672,857
Intangible assets, net............................................................................. 1,482,942
Other assets....................................................................................... 19,864
-------------
$ 4,617,114
=============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of notes payable (note 5)........................................................ $ 3,222,531
Convertible debentures........................................................................... 200,000
Accounts payable................................................................................. 291,597
Accrued wages and benefits....................................................................... 561,116
Accrued interest................................................................................. 157,082
Accrued liabilities.............................................................................. 866,308
Deferred revenue................................................................................. 140,450
Accrued contract losses.......................................................................... 43,337
Current portion of notes payable to related party................................................ 1,799
-------------
Total current liabilities...................................................................... 5,484,220
-------------
Shareholders' equity (deficit) (notes 6 and 10):
Common stock, par value $.001 per share. Authorized 25,000,000 shares; issued and outstanding
10,322,554..................................................................................... 10,323
Additional paid-in capital....................................................................... 18,402,614
Deferred compensation............................................................................ (34,380)
Stock subscription receivable (note 5)........................................................... (350,000)
Accumulated other comprehensive loss............................................................. (4,656)
Deficit accumulated during development stage..................................................... (18,891,007)
-------------
Total shareholders' equity (deficit)........................................................... (867,106)
Commitments and subsequent events (notes 12 and 13)
-------------
Total liabilities and shareholders' equity (deficit)........................................... $ 4,617,114
=============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-27
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
THREE MONTHS THREE MONTHS MARCH 4, 1998
ENDED ENDED (INCEPTION)
SEPTEMBER 30, SEPTEMBER 30, THROUGH
1999 1998 SEPTEMBER 30, 1999
-------------- ------------- ------------------
<S> <C> <C> <C>
Service revenue................................................ $ 212,733 22,470 358,959
Operating expenses:
License fees (note 7)........................................ -- -- 3,822,000
Depreciation and amortization................................ 132,702 23,026 402,293
Selling, general and administrative.......................... 2,882,274 1,755,147 14,649,990
-------------- ----------- --------------
Total operating expenses................................... 3,014,976 1,778,173 18,874,283
-------------- ----------- --------------
Loss from operations....................................... (2,802,243) (1,755,703) (18,515,324)
Loss on sale of equity securities.............................. -- -- 54,729
Interest expense, net.......................................... 1,029,812 2,408 1,974,186
-------------- ----------- --------------
Loss before extraordinary item............................. (3,832,055) (1,812,840) (20,544,239)
Extraordinary gain on extinguishment of debt................... -- -- 1,653,232
-------------- ----------- --------------
Net loss................................................... $ (3,832,055) (1,812,840) (18,891,007)
============== =========== ==============
Basic and diluted extraordinary gain per share................. $ -- -- .20
============== =========== ==============
Basic and diluted loss per share............................... $ (.38) (.22) (2.26)
============== =========== ==============
Weighted average common shares outstanding--basic and
diluted...................................................... $ 10,017,740 8,280,801 8,372,298
============== =========== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PRICE -------------------- PAID-IN DEFERRED
DATE PER SHARE SHARES AMOUNT CAPITAL COMPENSATION
---------- ---------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of common stock for cash.............. 3/98 $ .07--.33 754,545 $ 755 199,245 --
Common stock issued for services........... 3/98 0.22 1,445,455 1,445 316,555 --
Common stock issued in exchange for
shareholder's payment of Company debt.... 3/98 0.50 400,000 400 199,600 --
Common stock issued to acquire license..... 3/98 0.22 1,000,000 1,000 219,000 --
Common stock issued for services........... 4/98 0.22 100,000 100 21,900 --
Deferred compensation on stock issued for
services................................. 4/98 -- -- -- (14,080)
Amortization of deferred compensation...... 4/98--6/98 -- -- -- 1,760
Common stock issued to acquire license..... 4/98 0.22 1,900,000 1,900 416,100 --
Common stock issued for services........... 5/98 0.22 200,000 200 43,800 --
Common stock issued in exchange for
shareholder's payment of Company debt.... 5/98 1.00 200,000 200 199,800 --
Sale of common stock for cash.............. 5/98--6/98 1.00 303,000 303 302,697 --
Conversion of debt to capital
contribution............................. 6/98 -- -- 100,000 --
Adjustment resulting from reverse
acquisition.............................. 6/98 450,000 450 (310) --
Shares issued in business acquisition...... 6/98 1.00 400,000 400 399,600 --
Conversion of debt to common stock,
including interest....................... 6/98 1.00 184,000 184 185,349 --
Stock issued for deferred compensation..... 6/98 1.00 100,000 100 99,900 (100,000)
Sale of common stock for cash.............. 6/98 2.00 73,000 73 145,927 --
Comprehensive loss:
Net loss................................. -- -- -- --
--------- ---------
Total comprehensive loss...................
--------- --------- ----------- ---------
Balance at June 30, 1998................... 7,510,000 7,510 2,849,163 (112,320)
Sale of common stock for cash.............. 7/98--9/98 2.00 949,800 950 1,898,650 --
Exercise of warrants....................... 7/98--9/98 2.00 132,100 132 264,068 --
Warrants granted for services.............. 10/98--6/99 2.00--5.50 -- -- 2,340,720 --
Stock compensation paid by shareholders.... 11/98 2.00 -- -- 400,000 --
Stock option compensation.................. -- -- 233,211 (233,211)
Amortization of deferred compensation...... -- -- -- 282,052
Forfeited stock............................ (48,000) (48) (10,512) 10,560
Capital contributed upon extinguishment of
debt..................................... 12/98 -- -- 200,000 --
Subsidiary convertible common stock issued
in business acquisition.................. 1/99--4/99 3.00--4.50 -- -- 1,392,858 --
Options issued for legal services.......... 2/99 5.50 -- -- 479,708 --
Warrants granted for debt issue costs...... 2/99--6/99 3.50--5.50 -- -- 775,585 --
Shares issued for debenture conversion..... 3/99--5/99 2.50 320,000 320 950,680 --
Shares issued for services................. 10/98--6/99 2.00--5.50 366,500 366 1,261,834 --
Shares issued for debt issue costs......... 3/99 4.00 30,000 30 127,470 --
Sale of common stock for cash, net......... 3/99--6/99 3.00-5.50 614,334 615 2,300,763 --
Cashless exercise of warrants.............. 4/99 2,570 3 (3) --
Shares issued for technology............... 5/99 5.00 35,000 35 174,965 --
Comprehensive loss:
Net loss................................. -- -- -- --
Foreign currency translation
adjustment............................. -- -- -- --
Total comprehensive loss...................
--------- --------- ----------- ---------
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
STOCK DURING OTHER SHAREHOLDERS'
SUBSCRIPTION COMPREHENSIVE DEVELOPMENT COMPREHENSIVE EQUITY
RECEIVABLE LOSS STAGE LOSS (DEFICIT)
------------ -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Sale of common stock for cash.............. -- -- -- 200,000
Common stock issued for services........... -- -- -- 318,000
Common stock issued in exchange for
shareholder's payment of Company debt.... -- -- -- 200,000
Common stock issued to acquire license..... -- -- -- 220,000
Common stock issued for services........... -- -- -- 22,000
Deferred compensation on stock issued for
services................................. -- -- -- (14,080)
Amortization of deferred compensation...... -- -- -- 1,760
Common stock issued to acquire license..... -- -- -- 418,000
Common stock issued for services........... -- -- -- 44,000
Common stock issued in exchange for
shareholder's payment of Company debt.... -- -- -- 200,000
Sale of common stock for cash.............. -- -- -- 303,000
Conversion of debt to capital
contribution............................. -- -- -- 100,000
Adjustment resulting from reverse
acquisition.............................. -- -- -- 140
Shares issued in business acquisition...... -- -- -- 400,000
Conversion of debt to common stock,
including interest....................... -- -- -- 185,533
Stock issued for deferred compensation..... -- -- -- --
Sale of common stock for cash.............. -- -- -- 146,000
Comprehensive loss:
Net loss................................. -- (4,571,936) (4,571,936) -- (4,571,936)
Total comprehensive loss................... (4,571,936)
----------
---------- --------- ---------- -----------
Balance at June 30, 1998................... -- (4,571,936) -- (1,827,583)
Sale of common stock for cash.............. -- -- -- 1,899,600
Exercise of warrants....................... -- -- -- 264,200
Warrants granted for services.............. -- -- -- 2,340,720
Stock compensation paid by shareholders.... -- -- -- 400,000
Stock option compensation.................. -- -- -- --
Amortization of deferred compensation...... -- -- -- 282,052
Forfeited stock............................ -- -- -- --
Capital contributed upon extinguishment of
debt..................................... -- -- -- 200,000
Subsidiary convertible common stock issued
in business acquisition.................. -- -- -- 1,392,858
Options issued for legal services.......... -- -- -- 479,708
Warrants granted for debt issue costs...... -- -- -- 775,585
Shares issued for debenture conversion..... -- -- -- 951,000
Shares issued for services................. -- -- -- 1,262,200
Shares issued for debt issue costs......... -- -- -- 127,500
Sale of common stock for cash, net......... -- -- -- 2,301,378
Cashless exercise of warrants.............. -- -- -- --
Shares issued for technology............... -- -- -- 175,000
Comprehensive loss:
Net loss................................. -- (10,487,016) (10,487,016) -- (10,487,016)
Foreign currency translation
adjustment............................. -- (3,598) -- (3,598) (3,598)
----------
Total comprehensive loss................... (10,490,614)
----------
---------- --------- ---------- -----------
</TABLE>
F-29
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
PRICE -------------------- PAID-IN DEFERRED
DATE PER SHARE SHARES AMOUNT CAPITAL COMPENSATION
---------- ---------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999................. 9,912,304 $ 9,913 15,639,160 (52,919)
Common stock issued for prepaid
advertising............................ 7/99 6.00 50,000 50 299,950 --
Common stock issued for services......... 7/99 6.00 2,400 2 14,398 --
Warrants issued for services............. 8/99 -- -- -- 53,534 --
Sale of common stock for cash, net....... 8/99-9/99 6.50-7.00 357,850 358 2,384,782 --
Common stock subscribed.................. 9/99 7.00 -- -- -- --
Options granted for services............. 7/99-9/99 700 -- 5,105 --
Stock option compensation................ 7/99-9/99 -- -- 5,685 (5,685)
Amortization of deferred compensation.... -- -- -- 24,224
Comprehensive loss
Net loss............................... -- -- -- --
Foreign currency transaction
adjustment............................. -- -- -- --
Total comprehensive loss...............
--------- --------- ----------- ---------
Balance at September 30, 1999............ 10,322,554 10,323 18,402,614 (34,380)
========= ========= =========== =========
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED TOTAL
STOCK DURING OTHER SHAREHOLDERS'
SUBSCRIPTION COMPREHENSIVE DEVELOPMENT COMPREHENSIVE EQUITY
RECEIVABLE LOSS STAGE LOSS (DEFICIT)
-------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999................. -- (15,058,952) (3,598) (533,604)
Common stock issued for prepaid
advertising............................ -- -- -- 300,000
Common stock issued for services......... -- -- -- 14,400
Warrants issued for services............. -- -- -- 53,534
Sale of common stock for cash, net....... -- -- -- 2,385,140
Common stock subscribed.................. (350,000) -- -- -- (350,000)
Options granted for services............. -- -- -- 5,105
Stock option compensation................ -- -- --
Amortization of deferred compensation.... -- -- -- 24,224
Comprehensive loss
Net loss............................... -- (3,832,055) (3,832,055) -- (3,832,055)
Foreign currency transaction
adjustment............................. -- (1,058) -- (1,058) (1,058)
----------
Total comprehensive loss............... (3,833,113)
---------- ---------- --------- ---------- -----------
Balance at September 30, 1999............ (350,000) (18,891,007) (4,656) (867,106)
========= ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-30
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
THREE MONTHS THREE MONTHS MARCH 4, 1998
ENDED ENDED (INCEPTION) THROUGH
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------ --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................ $ (3,832,055) (1,812,840) (18,891,007)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization..................... 132,703 23,025 402,294
Common stock issued for services.................. 14,400 -- 1,648,280
Amortization and write-off of license fees........ -- -- 3,822,000
Loss on sale of equity securities................. -- 54,729 54,729
Amortization of deferred compensation............. 24,224 64,260 306,276
Gain on extinguishment of debt.................... -- -- (1,635,488)
Stock compensation paid by shareholders........... -- -- 400,000
Interest expense on debt converted to equity...... -- -- 255,765
Interest expense on warrants issued as debt issue
costs........................................... -- -- 535,535
Amortization of debt issue costs.................. 144,631 -- 288,631
Amortization of debt discount..................... 769,081 17,744 786,825
Options and warrants issued for services.......... 5,105 65,000 2,825,533
Provision for doubtful accounts................... -- 10,886 51,876
Write-off of note receivable...................... -- 800,000 800,000
Changes in assets and liabilities:
Accounts receivable............................. (60,489) (41) (112,258)
Prepaid offering costs.......................... (291,904) -- (617,791)
Other assets.................................... (51,089) (33,542) (71,001)
Accounts payable and accrued expenses........... 886,477 831,003 2,222,520
------------ ---------- ----------
Net cash used in operating activities......... (2,156,738) (418,192) (6,962,769)
------------ ---------- ----------
Cash flows from investing activities:
Cash assumed in business acquisition.............. -- -- 8,102
Loan for notes receivable......................... -- (800,000) (905,000)
Repayment of notes receivable..................... 30,000 50,000 80,000
Purchase of equity securities..................... -- (100,733) (100,733)
Proceeds from sale of equity securities........... -- 46,004 46,004
Purchase of property and equipment................ (229,331) (26,124) (581,994)
------------ ---------- ----------
Net cash used in investing activities......... (199,331) (830,853) (1,453,571)
------------ ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net....... 1,890,269 1,899,600 6,792,629
Proceeds from exercise of warrants................ -- 231,000 264,200
Proceeds from issuance of notes payable to related
parties......................................... -- -- 232,429
Proceeds from issuance of notes payable and
convertible debentures.......................... 957,450 -- 3,463,450
Cash paid for debt issue costs.................... (103,428) -- (284,446)
Repayment of notes payable to related parties..... -- (728,630) (1,690,630)
------------ ---------- ----------
Net cash provided by financing activities..... 2,744,291 1,401,970 9,377,632
------------ ---------- ----------
Net increase in cash.......................... 388,222 254,597 961,292
Cash at beginning of period........................... 569,472 -- --
Effect of exchange rate changes on cash balances...... (1,058) -- (4,656)
------------ ---------- ----------
Cash at end of period................................. $ 956,636 413,022 956,636
============ ========== ==========
Supplemental schedule of noncash activities:
Issuance of common stock for business acquisition... $ -- -- 400,000
Issuance of convertible stock in business
acquisition....................................... -- -- 1,392,858
Accrued asset purchases............................. -- -- 27,743
Conversion of debt to common stock.................. -- -- 1,084,000
Stock issued for prepaid advertising................ (300,000) -- (300,000)
Common stock issued in exchange for shareholders'
payment of Company debt........................... -- -- 400,000
Capital contributed upon extinguishment of debt..... -- -- 200,000
Common stock issued for internal-use software....... -- -- 175,000
Warrants issued for debt issue costs................ 144,871 -- 868,074
Warrants issued to settle an obligation............. 53,534 -- 53,534
Stock issued for debt issue costs................... -- -- 77,500
============ ========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-31
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Netgateway, Inc. and subsidiary ("Netgateway" or the "Company"), was formed
on March 4, 1998 as a Nevada corporation. Netgateway is an internet commerce
and connectivity company which provides turn-key solutions designed to
enable companies of any size to extend their business to the internet for a
wide variety of purposes, including the advertising and sale of products or
services by retailers and the conduct of commercial transactions between
business enterprises.
The Company is a development stage enterprise as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company is devoting
substantially all of its present efforts to developing technology. Planned
principal operations have commenced, but have not produced significant
revenue. Only minimal service and consulting revenues were generated through
September 30, 1999.
(2) LIQUIDITY
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course
of business. As of the date of this report, the Company's planned principal
operations have commenced, however, minimal revenues have been generated.
The Company has relied upon private placements of its stock and issuances of
debt to generate funds to meet its operating needs and plans to continue
pursuing financing in this manner during the next year. However, there are
no assurances that such financing will be available when and as needed to
satisfy current obligations. As such, substantial doubt exists as to whether
the Company will continue as a going concern.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(B) REVENUE RECOGNITION
Revenue generated from consulting services is recognized as services are
provided. Web-site development revenues are recognized upon completion of
each project. Services billed in advance are recorded as deferred revenue
and recognized when revenue is earned.
(C) BUSINESS SEGMENTS AND RELATED INFORMATION
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) establishes standards for the way
public business enterprises are to report information about operating
segments in annual financial statements and requires enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. Is also establishes standards for related
disclosure about products and services, geographic areas and major
customers. It replaces the "industry segment" concept of SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," with a
"management approach" concept as the basis for identifying reportable
segments. The Company has only one operating segment. The Company formed
its wholly-owned Canadian subsidiary, StoresOnline.com, in January 1999.
Prior to that time, the Company only had operations in
F-32
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the United States. All revenues during the three months ended
September 30, 1999 and 1998 were generated in the United States.
Substantially all of the Company's long-lived assets were located in the
United States at September 30, 1999.
(D) INVESTMENT SECURITIES
The Company accounts for investment securities in accordance with
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115
requires investments to be classified based on management's intent in one
of the three categories: held-to-maturity securities, available-for-sale
securities and trading securities. Held-to-maturity securities are
recorded at amortized cost. Available-for-sale securities are recorded at
fair value with unrealized gains and losses reported as a separate
component of shareholders' equity and comprehensive income (loss).
Trading securities are recorded at market value with unrealized gains and
losses reported in operations. The Company's investment securities have
been classified as available-for-sale.
(E) FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Canadian subsidiary,
StoresOnline.com, have been translated into U.S. dollars from its
functional currency in the accompanying consolidated financial statements
in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Balance sheet accounts of
StoresOnline.com are translated at year-end exchange rates while income
and expenses are translated at weighted-average exchange rates for the
period. Translation gains or losses that related to StoresOnline.com's
net assets are shown as a separate component of shareholders' equity
(deficit) and comprehensive income (loss). There were no gains or losses
resulting from realized foreign currency transactions (transactions
denominated in a currency other than the entities' functional currency)
during the three months ended September 30, 1999 and 1998.
(F) LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common
shares outstanding during the period in accordance with SFAS No. 128
"Earnings Per Share". Diluted earnings (loss) per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings (loss) per share is computed similarly to
fully diluted earnings (loss) per share pursuant to Accounting Principles
Board (APB) Opinion No. 15. There were 4,502,455 options and 2,127,475
warrants to purchase shares of common stock that were outstanding during
the three months ended September 30, 1999 which were not included in the
computation of diluted loss per share because the impact would have been
antidilutive. There were 333,286 options and 890,700 warrants to purchase
shares of common stock that were outstanding during the three months
ended September 30, 1998 which were not included in the computation of
diluted loss per share because the impact would have been antidilutive.
F-33
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(G) COSTS OF START-UP ACTIVITIES
Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the Costs
of Start-Up Activities," the Company expenses all the costs of start-up
activities as incurred.
(H) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the balance sheet date and the
reporting of revenues and expenses during the reporting periods to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(I) RECLASSIFICATIONS
Certain amounts have been reclassified to conform with current year
presentation.
(4) NOTES RECEIVABLE AND NOTES RECEIVABLE FROM OFFICER
During the period March 4, 1998 (inception) through June 30, 1998, the
Company issued a $50,000 note receivable to a customer which was repaid
during the year ended June 30, 1999. In July 1998 and August 1998, the
Company advanced $800,000 to an entity with which the Company was in merger
discussions. Certain Company officers and directors were minor shareholders
of the potential merger entity. The merger was not consummated and the
advance was deemed uncollectible and written-off during the three months
ended September 30, 1998. During June 1999, the Company issued its chief
executive officer, Keith Freadhoff, a non-interest bearing $30,000 note
receivable. The note was repaid in July 1999.
(5) NOTES PAYABLE
In August and September 1999, the Company obtained bridge financing whereby
12% senior notes payable and 357,850 shares of common stock were issued
generating proceeds of $2,744,290, net of $803,612 of issuance costs. The
senior notes payable are due the earlier of April 30, 2000 or upon the close
of a public sale of the Company's common stock. The Company also granted
149,375 warrants to purchase an equivalent number of shares of common stock
at an exercise price of $10 per share as additional issuance costs. The
warrants are exercisable for a period of four years commencing May 18, 2000.
The fair value of the warrants on the dates of issuance was estimated to be
$396,500 using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%; risk-free interest rate of 5%; volatility
of 100% and an expected life of 2 years. The net proceeds from the bridge
financing were allocated to the senior notes payable and common stock based
on their relative fair values. Accordingly, $957,450 was recorded as notes
payable, $2,035,140 as equity, net of $555,313 of stock issuance costs, and
$248,299 as debt issuance costs. Under the Securities Act, the rules and
regulations under the Securities Act, and the interpretations of the
Commission, we may be required to offer rescission to investors in our May
through September 1999 private placement.
In September 1999, the Company issued a 12% senior note payable of $500,000
and 50,000 shares of common stock valued at $350,000 stock, however, the
proceeds were received in October 1999. As a result, the Company recorded a
stock subscription receivable of $350,000 at September 30, 1999. The note is
due the earlier of April 30, 2000 or upon the close of a public sale of the
F-34
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NOTES PAYABLE (CONTINUED)
Company's common stock. Under the Securities Act, the rules and regulations
under the Securities Act, and the interpretations of the Commission, we may
be required to offer rescission to investors in our May through September
1999 private placement. If the Company is required to rescind the May
through September private placement in its entirety, the Company would be
required to refund all of the gross proceeds of the May through September
private placement to the investors. Even following the repayment of the
notes, based on the Securities Act, the rule and regulations under the
Securities Act, and the interpretations of the Commission, the investors in
the May through September private placement may have the right to require
the Company to repurchase the shares of common stock which they received in
the May through September private placement if they can successfully argue
that those shares were issued in lieu of a higher interest rate on those
notes.
(6) SHAREHOLDERS' EQUITY (DEFICIT)
In July 1999, the Board of Directors adopted the 1999 Stock Option Plan for
Non-Executives. An aggregate of 2,000,000 shares were reserved for issuance
under the Plan. During the three months ended September 30, 1999, the
Company granted 555,764 options under the Plan at exercise prices ranging
from $5.25 to $12.50 per share. The Company also granted 200,000 options
under the 1998 Executive Plan in July 1999 at an exercise price of $8.18 per
share.
In July 1999, the Company entered into a Cable Reseller and Mall agreement
with MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued
to MediaOne 50,000 shares of common stock and warrants to purchase 200,000
shares of common stock. The exercise price of the warrants is dependent upon
the market price of the Company's common stock on the date that the warrants
are earned under certain performance criteria.
In July 1999, the Company issued 2,400 shares of common stock valued at
$14,400 for services.
(7) SUBSEQUENT EVENTS
In October 1999, the Company issued a 12% senior note payable of $25,000 and
2,500 shares of common stock valued at $17,500. The note is due the earlier
of April 30, 2000 or upon the close of a public sale of the Company's common
stock. The Company also granted 1,250 warrants valued at $3,349. The net
proceeds were allocated to the senior notes payable and common stock based
on their relative fair value. Under the Securities Act, the rules and
regulations under the Securities Act, and the interpretations of the
Commission, we may be required to offer rescission to investors in our May
through September 1999 private placement. If the Company is required to
rescind the May through September private placement in its entirety, the
Company would be required to refund all of the gross proceeds of the May
through September private placement to the investors. Even following the
repayment of the notes, based on the Securities Act, the rule and
regulations under the Securities Act, and the interpretations of the
Commission, the investors in the May through September private placement may
have the right to require the Company to repurchase the shares of common
stock which they received in the May through September private placement if
they can successfully argue that those shares were issued in lieu of a
higher interest rate on those notes.
In October 1999, the Company issued 962,444 shares of common stock upon the
cashless exercise of warrants, 1,200,000 shares of common stock to three
executives upon the cancelation of 1,980,000 options, and 8,000 shares of
common stock upon the conversion of $20,000 of convertible debentures. In
November 1999, the Company issued 270 shares of common stock upon the
exercise of warrants for $270.
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Members
Infobahn Technologies, LLC (dba Digital Genesis):
We have audited the accompanying balance sheets of Infobahn Technologies,
LLC (a limited liability company) (dba Digital Genesis) as of December 31, 1997
and 1996 and the related statements of operations, members' equity (deficit) and
cash flows for the year ended December 31, 1997 and the period from February 2,
1996 (inception) through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all materials respects, the financial position of Infobahn Technologies, LLC
(a limited liability company) (dba Digital Genesis) as of December 31, 1997 and
1996 and the results of its operations and its cash flows for the year ended
December 31, 1997 and the period from February 2, 1996 (inception) through
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG LLP
Los Angeles, California
July 2,1999
F-36
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 6,783 3,649
Accounts receivable less allowance for doubtful accounts of $0 and $1,295 as of
December 31, 1997 and 1996 respectively............................................... 75,174 20,351
Other current assets.................................................................... 3,450 3,450
---------- ----------
Total current assets.................................................................. 85,407 27,450
Property and equipment, net (note 3)...................................................... 17,755 1,999
---------- ----------
$ 103,162 29,449
========== ==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable........................................................................ $ 19,387 11,179
Accrued expenses........................................................................ 2,398 1,955
Deferred revenue........................................................................ 37,666 25,787
---------- ----------
Total current liabilities............................................................. 59,451 38,921
---------- ----------
Members' equity (deficit):
Members' capital........................................................................ 43,979 34,906
---------- ----------
Accumulated deficit..................................................................... (268) (44,378)
---------- ----------
43,711 (9,472)
---------- ----------
Total members' equity (deficit)....................................................... $ 103,162 29,449
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
FEBRUARY 2, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Service revenue........................................................................... $ 499,213 142,685
---------- ----------
Operating expenses:
Selling, general and administrative..................................................... 453,675 186,994
Depreciation............................................................................ 1,428 69
---------- ----------
Total operating expenses.............................................................. 455,103 187,063
---------- ----------
Net income (loss)..................................................................... $ 44,110 (44,378)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
STATEMENT OF MEMBERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
FEBRUARY 2, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
TOTAL
MEMBERS'
MEMBERS' ACCUMULATED EQUITY
CAPITAL DEFICIT (DEFICIT)
----------- ------------ -------------
<S> <C> <C> <C>
Capital contribution..................................................... $ 34,906 -- 34,906
Net loss................................................................. -- (44,378) (44,378)
--------- ---------- ---------
Balance at December 31, 1996............................................. 34,906 (44,378) (9,472)
Capital contribution..................................................... 9,073 -- 9,073
Net income............................................................... -- 44,110 44,110
--------- ---------- ---------
Balance at December 31, 1997............................................. $ 43,979 (268) 43,711
========= ========== =========
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND THE PERIOD FROM
FEBRUARY 2, 1996 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................................... $ 44,110 (44,378)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................ 1,428 69
Allowance for doubtful accounts......................................................... -- 1,295
Changes in assets and liabilities:
Accounts receivable................................................................... (54,823) (21,646)
Other current assets.................................................................. -- (3,450)
Accounts payable...................................................................... 8,208 11,179
Accrued expenses...................................................................... 443 1,955
Deferred revenue...................................................................... 11,879 25,787
---------- ---------
Net cash provided by (used in) operating activities................................. 11,245 (29,189)
Cash flows from investing activities--purchase of property and equipment.................... (17,184) (2,068)
Cash flows from financing activities--Member contributions.................................. 9,073 34,906
---------- ---------
Increase in cash.................................................................... 3,134 3,649
Cash at beginning of period................................................................. 3,649 --
---------- ---------
Cash at end of period....................................................................... $ 6,783 3,649
========== =========
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF COMPANY
Infobahn Technologies, LLC (dba Digital Genesis) (Digital Genesis or the
Company) was formed on February 2, 1996 as a California limited
liability company. The Company is primarily an internet consulting
company, earning revenues from consulting services, website design and
development and website hosting services. The Company is also engaged in
developing electronic commerce applications.
(B) REVENUE RECOGNITION
Consulting and website hosting revenue is recognized as services are
performed. Website design and development revenue is recognized upon
completion of the contract.
(C) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
using the straight-line method over the following estimated useful lives
of the assets, five years.
(D) INCOME TAXES
Digital Genesis is a limited liability company taxed for Federal
purposes as a partnership; therefore, the net earnings of the Company
are included in the taxable income of its owners. The Company may be
subject to income taxes in certain jurisdictions that impose
unincorporated business or income taxes.
(E) FINANCIAL INSTRUMENTS
The carrying values of cash, accounts receivable, accounts payable and
accrued expenses at December 31, 1997 and 1996 approximated fair value
due to the short maturity of those instruments. All financial
instruments are held for purposes other than trading.
(F) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130),
establishes standards for reporting and displaying comprehensive income
and its components in a full set of general-purpose financial
statements. The Company does not have components of other comprehensive
income. Therefore, comprehensive income is the same as net income (loss)
in 1997 and the period from February 2, 1996 (inception) through
December 31, 1996.
(G) COSTS OF START-UP ACTIVITIES
Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities," the Company expenses all of the costs of
start-up activities as incurred.
F-41
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(H) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of revenues
and expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) CONCENTRATION OF CREDIT RISK
The Company primarily provided consulting services to technology based
businesses. The Company had three customers for which revenues exceeded 10% of
total revenues in 1997, accounting for approximately 84% or $417,000 of total
service revenue for the year ended December 31, 1997. The Company had two
customers for which revenues exceeded 10% of total revenues in 1996, accounting
for approximately 25% or $37,000 of total service revenue for the period from
February 2, 1996 (inception) through December 31, 1996. In addition, the three
customer accounted for 81% of accounts receivable at December 31, 1997. There
were no customers which exceeded 10% of accounts receivable at December 31,
1996.
(3) PROPERTY AND EQUIPMENT
Property and equipment is stated at costs and consists of the following at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Computer equipment......................................................... $ 19,252 2,068
Less accumulated depreciation.............................................. 1,497 69
--------- ---------
$ 17,755 1,999
========= =========
</TABLE>
(4) OPERATING LEASES
The Company leased its office facilities under noncancellable operating leases,
with the option to extend under month to month terms. As of December 31, 1997,
there were no future minimum commitments under noncancelable leases.
Rent expense was $43,800 and $28,093 during the year ended December 31, 1997
and the period from February 2, 1996 (inception) through December 31, 1996,
respectively.
(5) SUBSEQUENT EVENTS
On June 2, 1998, Netgateway, Inc. acquired substantially all assets and assumed
substantially all liabilities of the Company in exchange for 400,000 shares of
Netgateway, Inc. common stock.
F-42
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
UNAUDITED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... $ 4,057 6,783
Accounts receivable less allowance for doubtful accounts of $1,510 and $0 as of March
31, 1998 and December 31, 1997, respectively.......................................... 14,908 75,174
Other current assets.................................................................... -- 3,450
--------- ---------
Total current assets................................................................ 18,965 85,407
Property and equipment net.................................................................. 18,894 17,755
--------- ---------
$ 37,859 103,162
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 1,962 19,387
Accrued expenses........................................................................ 9,083 2,398
--------- ---------
Total current liabilities........................................................... 11,045 21,785
Members' equity............................................................................. 26,814 81,377
--------- ---------
$ 37,859 103,162
========= =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-43
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
UNAUDITED STATEMENTS OF EARNINGS AND MEMBERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Service revenue (note 2).................................................................... $ 41,820 79,553
Operating expenses:
Selling, general and administrative....................................................... 67,270 38,777
Depreciation.............................................................................. 1,113 207
---------- ---------
Total operating expenses................................................................ 68,383 38,984
---------- ---------
Net income (loss)....................................................................... (26,563) 40,569
Members' equity, beginning of period........................................................ 81,377 16,315
Member draws................................................................................ (28,000) (17,200)
Members' equity, end of period.............................................................. $ 26,814 39,684
========== =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-44
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
UNAUDITED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (Loss)......................................................................... $ (26,563) 40,569
Adjustments to reconcile net income(loss) to net cash provided by operating activities:
Depreciation............................................................................ 1,113 207
Changes in assets and liabilities:
Accounts receivable................................................................... 60,266 (33,889)
Other current assets.................................................................. 3,450 3,450
Accounts payable...................................................................... (17,425) 1,344
Accrued expenses...................................................................... 6,685 1,939
---------- ---------
Net cash provided by operating activities........................................... 27,526 13,620
---------- ---------
Cash flows from investing activities--purchase of property and equipment.................... (2,252) (69)
---------- ---------
Cash flows from financing activities--member draws.......................................... (28,000) (17,200)
---------- ---------
Decrease in cash.................................................................... (2,726) (3,649)
Cash, beginning of period................................................................... 6,783 3,649
---------- ---------
Cash, end of period......................................................................... $ 4,057 --
========== =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-45
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
Infobahn Technologies, LLC dba Digital Genesis (Digital Genesis or the
Company) was formed in February 1996 as a California limited liability company.
The Company is primarily an internet consulting company, earning revenues from
consulting services, website design & development and web hosting. The Company
is also engaged in developing eCommerce applications.
REVENUE RECOGNITION
Revenue generated from consulting services is recognized as services are
performed.
INCOME TAXES
Digital Genesis is a limited liability company taxed for Federal purposes as
a partnership; therefore, the net earnings of the Company are included in the
taxable income of its owners. The Company may be subject to income taxes in
certain jurisdictions that impose unincorporated business or income taxes.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" (SFAS No. 130) establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. The Company does not have
components of other comprehensive income. Therefore, comprehensive income is the
same as net income for the three months ended March 31, 1998 and 1997.
COSTS OF START-UP ACTIVITIES
Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities", the Company expenses all of the costs of start-up
activities as incurred.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses during the reporting period to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-46
<PAGE>
INFOBAHN TECHNOLOGIES, LLC
(DBA DIGITAL GENESIS)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
2. CONCENTRATION OF CREDIT RISK
The Company primarily provided consulting services to technology based
businesses. The following customers comprised more than 10% of total revenues,
individually, during the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Customer A...................................................................... 17% 62%
Customer B...................................................................... 37% --
Customer C...................................................................... 21% 2%
</TABLE>
Additionally, four customers accounted for 62% of accounts receivable at
March 31, 1998 and two customers accounted for 70% of accounts receivable at
March 31, 1997.
SUBSEQUENT EVENTS
On June 2, 1998, Netgateway, Inc. acquired certain assets and liabilities of
the Company, in exchange for 400,000 shares of Netgateway, Inc. common stock.
F-47
<PAGE>
AUDITOR'S REPORT
To the Shareholders
of Spartan Multimedia Inc.
I have audited the balance sheet of Spartan Multimedia Inc. as at
August 31, 1998 and the statement of earnings and retained earnings and changes
in financial position for the year then ended. These financial statements are
the responsibility of the company's management. My responsibility is to express
an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In my opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at August 31, 1998 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles in the
United States.
/s/ ALLAN HOGENSON
--------------------------------------
ALLAN HOGENSON
Chartered Accountant
Calgary, Alberta
April 19, 1999
F-48
<PAGE>
SPARTAN MULTIMEDIA INC.
BALANCE SHEET
AUGUST 31, 1998
(IN CANADIAN DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT
Cash............................................................................ $ 53,075
Accounts receivable (Note 2).................................................... 39,042
---------
92,117
CAPITAL (Note 3).................................................................. 10,714
---------
$ 102,831
=========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 2)............................... $ 30,042
Due to shareholders (Note 2).................................................... 24,030
---------
54,072
---------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4)............................................................ 147,510
RETAINED EARNINGS (DEFICIT)....................................................... (98,751)
---------
48,759
---------
$ 102,831
=========
</TABLE>
APPROVED ON BEHALF OF THE BOARD:
<TABLE>
<C> <S> <C>
,
/s/ David Rosenval Director
- ---------------------------------
David Rosenval
,
/s/ Jordi MacDonald Director
- ---------------------------------
Jordi MacDonald
</TABLE>
F-49
<PAGE>
SPARTAN MULTIMEDIA INC.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED AUGUST 31, 1998
(IN CANADIAN DOLLARS)
<TABLE>
<S> <C>
REVENUE........................................................................... $ 13,188
---------
EXPENSES
Advertising and promotion....................................................... 39,547
Depreciation.................................................................... 1,335
Management fees................................................................. 53,674
Office.......................................................................... 4,299
Postage and delivery............................................................ 195
Professional fees............................................................... 2,651
Telephone....................................................................... 4,921
Travel.......................................................................... 5,317
---------
111,939
---------
NET EARNINGS (LOSS) and RETAINED EARNINGS
(DEFICIT), end of year............................................................ $ (98,751)
=========
</TABLE>
F-50
<PAGE>
SPARTAN MULTIMEDIA INC.
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED AUGUST 31, 1998
(IN CANADIAN DOLLARS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net earnings.................................................................... $ (98,751)
Item not affecting cash
Depreciation.................................................................. 1,335
---------
(97,416)
Net change in non-cash working capital balances................................. 15,030
---------
(82,386)
---------
FINANCING ACTIVITIES
Issuance of share capital....................................................... 147,510
---------
INVESTMENT ACTIVITIES
Purchase of capital assets...................................................... (12,049)
---------
INCREASE IN CASH.................................................................. 53,075
CASH, beginning of year........................................................... --
---------
CASH, end of year................................................................. $ 53,075
=========
</TABLE>
F-51
<PAGE>
SPARTAN MULTIMEDIA INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS
Capital assets are recorded at cost and are depreciated using the following
annual rates and methods:
Computer equipment 30% Declining balance
2. RELATED PARTY TRANSACTIONS
During the year, the company had business transactions with its
shareholders. The particulars of these transactions and balances owing from or
to these shareholders for the year ended August 31 were as follows:
<TABLE>
<S> <C>
Transactions during the year:
Management fees.................................................. $ 51,357
Computer equipment............................................... 9,000
Balances at end of year:
Accounts receivable (share subscriptions)........................ $ 37,500
Accounts payable (management fees)............................... 14,000
</TABLE>
Amounts due to shareholders are non-interest bearing and are not subject to
specified terms of repayment.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
-------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
--------- ------------- -----------
<S> <C> <C> <C>
Computer equipment........................................ $ 12,049 $ 1,335 $ 10,714
</TABLE>
4. SHARE CAPITAL
AUTHORIZED
Unlimited number of common shares
ISSUED
<TABLE>
<S> <C>
1,666,668 common shares........................................... $ 147,510
=========
</TABLE>
5. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date,
F-52
<PAGE>
SPARTAN MULTIMEDIA INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1998
5. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE (CONTINUED)
resulting in errors when information using year 2000 dates is processed. In
addition, similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year 2000
Issue may be experienced before, on, or after January 1, 2000, and if not
addressed, the impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an entity's ability to
conduct normal business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the entity, including those related to
the efforts of customers, suppliers, or other parties, will be fully resolved.
6. SUBSEQUENT EVENTS
Effective November 1, 1998, an agreement was entered into between the
shareholders of the company, Netgateway, Inc. and its wholly owned subsidiary,
Storesonline.com Ltd. (Storesonline). All of the shares of the company were
transferred to Storesonline on the effective date. The company will be
amalgamated with Storesonline upon closing.
F-53
<PAGE>
SPARTAN MULTIMEDIA INC.
UNAUDITED BALANCE SHEETS
NOVEMBER 30, 1998 AND AUGUST 31, 1998
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Current
Cash................................................................................. $ 12,245 53,075
Accounts receivable.................................................................. 695 39,042
---------- ----------
12,940 92,117
Capital................................................................................ 9,910 10,714
---------- ----------
$ 22,850 102,831
========== ==========
LIABILITIES
Current
Accounts payable and accrued liabilities............................................. $ 11,643 30,042
Due to shareholders.................................................................. 24,030 24,030
Due to Netgateway.................................................................... 3,079 --
---------- ----------
38,752 54,072
---------- ----------
SHAREHOLDERS EQUITY
Share Capital.......................................................................... 147,510 147,510
Retained Deficit....................................................................... (163,412) (98,751)
---------- ----------
(15,902) 48,759
---------- ----------
$ 22,850 102,831
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
F-54
<PAGE>
SPARTAN MULTIMEDIA INC.
UNAUDITED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED NOVEMBER 31, 1998 AND FOR THE
PERIOD SEPTEMBER 19, 1997 (INCEPTION) THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Revenue...................................................................................... $ 1,808 --
Expenses
Advertising and promotion.................................................................. 16,947 --
Depreciation............................................................................... 804 --
Management Fees............................................................................ 39,067 --
Office..................................................................................... 2,274 --
Postage and Delivery....................................................................... 168 --
Professional Fees.......................................................................... 105 --
Telephone.................................................................................. 1,809 --
Travel..................................................................................... 5,295 --
---------- ---------
66,469 --
---------- ---------
Net Loss and Retained Deficit................................................................ $ (64,661) --
========== =========
</TABLE>
See accompanying notes to unaudited financial statements.
F-55
<PAGE>
SPARTAN MULTIMEDIA INC.
UNAUDITED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTHS ENDED NOVEMBER 31, 1998 AND FOR THE
PERIOD SEPTEMBER 19, 1997 (INCEPTION) THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Operating activities
Net loss................................................................................. $ (64,661) --
Item not affecting cash
Depreciation........................................................................... 804 --
---------- ---------
(63,857) --
Net change in non-cash working capital balances.......................................... 23,027 --
---------- ---------
(40,830)
Financing activities....................................................................... -- --
Investment activities...................................................................... -- --
---------- ---------
Decrease in cash......................................................................... (40,830) --
Cash, beginning of period 53,075 --
---------- ---------
Cash, end of period $ 12,245 --
========== =========
</TABLE>
F-56
<PAGE>
SPARTAN MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
(UNAUDITED)
1. INCORPORATION
The Company was incorporated under the Alberta Business Corporation Act on
September 19, 1997 and commenced operations in December of 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
CAPITAL ASSETS
Capital assets are recorded at cost and are depreciated using the following
annual rates and methods:
<TABLE>
<S> <C> <C>
Declining
Computer Equipment.......................... 30% Balance
</TABLE>
3. RELATED PARTY TRANSACTIONS
During the three months ended November 30,1998, the Company had business
transactions with its shareholders. The particulars of these transactions and
balances owing from or to these shareholders were as follows:
Transactions during the period:
<TABLE>
<S> <C>
Management Fees........................................... $31,026
</TABLE>
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
COST AMORTIZATION NET BOOK VALUE
--------- ------------- ---------------
<S> <C> <C> <C>
Computer equipment...................................................... $ 12,049 $ 2,139 $ 9,910
</TABLE>
5. SHARE CAPITAL
<TABLE>
<S> <C>
Authorized........................................................
Unlimited number of no par value common shares....................
Issued............................................................
1,666,668 common shares........................................... $ 147,510
---------
</TABLE>
6. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-57
<PAGE>
SPARTAN MULTIMEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998 AND 1997
(UNAUDITED)
7. COMMITMENTS
Effective November 1, 1998, an agreement was entered into between the
shareholders of the company, Netgateway, Inc. and its wholly owned subsidiary,
Storesonline.com Ltd (Storesonline). All of the shares of the company were
transferred to Storesonline on the effective date. The company will be
amalgamated with Storesonline upon closing.
F-58
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Video Calling Card, Inc.
We have audited the accompanying balance sheet of Video Calling Card, Inc.
(a development stage company) as of December 31, 1997 and 1996 and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (April 13, 1995) through December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Video Calling Card, Inc. (a
development stage company) at December 31, 1997 and 1996 and the results of its
operations and its cash flows for the period from inception (April 13, 1995)
through December 31, 1997 in conformity with generally accepted accounting
principles.
Ted A. Madsen, CPA
January 21, 1998
Salt Lake City, Utah
F-59
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current Assets
Cash.................................................................................. $ 1,227 $ 783
Prepaid expenses...................................................................... -- 400
Loan receivable....................................................................... -- 2,500
---------- ----------
Total Current Assets................................................................ 1,227 3,883
Property & Equipment, less accumulated depreciation of $352 in 1996..................... -- 3,031
Other Assets
Organization costs, less accumulated amortization of $220 in 1997 and $140 in 1998.... 180 260
---------- ----------
Total Other Assets.................................................................. 180 260
---------- ----------
TOTAL ASSETS.............................................................................. $ 1,407 $ 8,974
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable...................................................................... $ 2,500 $ --
---------- ----------
Total Current Liabilities........................................................... 2,500 --
Stockholders' Equity (Deficit)
Common stock, authorized 25,000,000 shares at $.001 par value, issued and outstanding
500,000 shares...................................................................... 900 900
Additional paid in capital............................................................ 27,450 27,450
(Deficit) Accumulated during development stage........................................ (29,443) (21,376)
---------- ----------
Total Stockholders' Equity (Deficit)................................................ (1,093) 6,974
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.................................................. $ 1,407 $ 6,974
========== ==========
</TABLE>
See accountant's report and notes to financial statements.
F-60
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
SALES
Expenses
Advertising............................................................................. $ -- $ 5,875
Amortization............................................................................ 80 80
Bank charges............................................................................ 119 89
Depreciation............................................................................ -- 352
Production expenses..................................................................... -- 8,348
Professional fees....................................................................... 4,350 1,663
Rent and office expenses................................................................ 1,200 3,596
Taxes and licenses...................................................................... 100 100
--------- ----------
Total Expenses........................................................................ 5,849 19,903
--------- ----------
(LOSS) FROM OPERATIONS...................................................................... (5,849) (19,903)
OTHER INCOME (EXPENSE)
Interest income........................................................................... 413 --
Loss on sale of furniture & equipment..................................................... (2,631) --
--------- ----------
Total Other Income (Expense).......................................................... (2,218) --
--------- ----------
NET (LOSS).................................................................................. $ (8,067) $ (19,903)
========= ==========
</TABLE>
See accountant's report and notes to financial statements.
F-61
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss.................................................................................. $ (8,067) $ (19,803)
--------- ----------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization........................................................... 80 432
Loss on sale of furniture and equipment................................................. 2,631 --
(Decrease) in prepaid expenses.......................................................... 400 (400)
(Decrease) in loan receivable........................................................... 2,500 (2,500)
Increase (Decrease) in accounts payable................................................. 2,500 (2,000)
--------- ----------
Total Adjustments......................................................................... 8,111 (4,465)
--------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................................... 44 (24,371)
--------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Purchase of equipment & furniture......................................................... -- (3,383)
Proceeds from the sale of equipment....................................................... 400 --
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................... 400 (3,383)
--------- ----------
Net increase (Decrease) in Cash and Equivalents........................................... 444 (27,754)
Cash and Equivalents, beginning of year................................................... 783 28,537
--------- ----------
Cash and Equivalents, end of year......................................................... $ 1,227 $ 783
========= ==========
</TABLE>
See accountant's report and notes to financial statements
F-62
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
FROM DATE OF INCEPTION (APRIL 13, 1995) TO
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID IN
SHARES AMOUNT CAPITAL (DEFICIT)
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Original shares issued for cash....................................... 800,000 $ 600 $ 5,400 --
Proceeds from stock offering.......................................... 300,000 $ 300 30,000 --
Stock offering costs.................................................. -- $ -- 7,950 --
Net (Loss) From the Period of Inception (April 13, 1995) Through
December 31, 1995................................................... -- $ -- -- $ (1,473)
--------- --------- --------- ----------
Balance December 31, 1995............................................. 900,000 $ 900 $ 27,450 $ (1,473)
Net (Loss) for the Year Ended December 31, 1996....................... -- -- -- $ (19,803)
--------- --------- --------- ----------
Balance December 31, 1996............................................. 900,000 $ 900 $ 27,450 $ (21,378)
Net (Loss) for the Year Ended December 31, 1997....................... -- $ -- $ -- $ (8,087)
--------- --------- --------- ----------
Balance December 31, 1997............................................. 900,000 $ 900 $ 27,450 $ (29,443)
========= ========= ========= ==========
</TABLE>
See accountant's report and notes to financial statements
F-63
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. NATURE OF BUSINESS
Video Calling Card, Inc. is a development stage company that was incorporated on
April 13, 1995 under the laws of the State of Nevada. A development stage
company is one in which most of the activities of the business are devoted to
raising capital, developing markets, and starting production. The original
business purpose of the Company was to engage in the marketing of a unique
promotional video to businesses in use for marketing their products or services
to select prospects. In 1997 the Company sold its assets associated with the
video operation. The Company is now searching for new opportunities with
potential for profit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are used by the Company in
preparing and presenting its financial statements:
A. INCOME TAXES
Although the Company recognizes the proper accounting for deferred income
taxes pursuant to SFAS 109, the Company has determined that the tax loss
generated in the years ended December 31, 1997 and 1996 is available for
carry forward to future years. However, a deferred tax benefit has not
been included in the financial statements because there is uncertainty
regarding the realization of this tax benefit in the future.
B. ORGANIZATION COSTS AND AMORTIZATION
At the time of incorporation the Company incurred organization costs of
$400, in accordance with generally accepted accounting principles these
costs are being amortized over sixty (60) months beginning April 13, 1995
C. STOCK OFFERING
In order to raise capital in the State of Nevada of $30,000 the Company
completed a securities offering on December 20, 1995 in which 300,000
shares of common stock were sold at $.10 per share. The net proceeds will
be used for the purpose of marketing a unique new promotional video to
businesses to use for marketing their products or services to select
prospects.
The offering costs, including selling costs, filing fees, and legal fees
have been treated as a reduction in the paid in capital amounts of the
corporation.
F-64
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Video Calling Card, Inc.
We have audited the accompanying balance sheet of Video Calling Card, Inc.
(a development stage company) as of December 31, 1996 and 1995 and the related
statements of operations, stockholders' equity and cash flows for the period
from inception (April 13, 1995) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Video Calling Card, Inc. (a
development stage company) at December 31, 1996 and 1995 and the results of of
its operations and its cash flows for the period from inception (April 13, 1995)
through December 31, 1996 in conformity with generally accepted accounting
principles.
Ted A. Madsen, CPA
September 12, 1997
Salt Lake City, Utah
F-65
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash................................................................................... $ 783 $ 28,537
Prepaid expenses....................................................................... 400 --
Loan receivable........................................................................ 2,500 --
---------- ---------
Total Current Assets................................................................. 3,683 28,537
Property & Equipment, less accumulated depreciation of $352 in 1996...................... 3,031 --
Other Assets
Organization costs, less accumulated amortization of $140 in 1996 and $60 in 1995...... 260 340
---------- ---------
Total Other Assets................................................................... 260 340
---------- ---------
TOTAL ASSETS............................................................................... $ 6,974 $ 28,877
========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................................................... $ -- $ 2,000
---------- ---------
Total Current Liabilities............................................................ -- 2,000
Stockholders' Equity
Common stock, authorized 25,000,000 shares at $.001 par value, issued and outstanding
900,000 shares....................................................................... 900 900
Additional paid in capital............................................................. 27,450 27,450
(Deficit) accumulated during development stage......................................... (21,376) (1,473)
---------- ---------
Total Stockholders' Equity (Deficit)................................................. 6,974 26,877
---------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY................................................... $ 6,974 $ 28,877
========== =========
</TABLE>
See accountant's report and notes to financial statements.
F-66
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(APRIL 13, 1995) THROUGH DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
SALES
Expenses
Advertising............................................................................. $ 5,675 $ --
Amortization............................................................................ 80 60
Bank charges............................................................................ 89 72
Depreciation............................................................................ 352 --
Production expenses..................................................................... 8,348 --
Professional fees....................................................................... 1,663 1,200
Rent and office expenses................................................................ 3,596 56
Taxes and licenses...................................................................... 100 85
---------- ---------
Total Expenses........................................................................ 19,903 1,473
---------- ---------
NET (LOSS) FROM OPERATIONS.................................................................. $ (19,903) $ (1,473)
========== =========
</TABLE>
See accountant's report and notes to financial statements.
F-67
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION
(APRIL 13, 1995) THROUGH DECEMBER 31, 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss................................................................................. $ (19,903) $ (1,473)
---------- ---------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.......................................................... 432 60
(Increase) in prepaid expenses......................................................... (400) --
(Increase) in loan receivable.......................................................... (2,500) --
(Increase) in other assets............................................................. -- (400)
Increase (decrease) in accounts payable................................................ (2,000) 2,000
---------- ---------
Total Adjustments........................................................................ (4,468) 1,660
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................................. (24,371) 187
---------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Purchase of equipment & furniture........................................................ (3,383) --
Net proceeds from issuance of common stock............................................... -- 28,350
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................................. (3,383) 28,350
---------- ---------
Net increase (decrease) in cash and equivalents.......................................... (27,754) 28,537
Cash and equivalents, beginning of year.................................................. 28,537 --
---------- ---------
Cash and equivalents, end of year........................................................ $ 783 $ 28,537
========== =========
</TABLE>
See accountant's report and notes to financial statements
F-68
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL (DEFICIT)
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Original shares issued for cash..................................... 600,000 $ 600 $ 5,400 --
Proceeds from stock offering........................................ 300,000 $ 300 30,000 --
Stock offering costs................................................ -- $ -- 7,950 --
Net (loss) from the period of inception (April 13, 1995) through
December 31, 1995................................................. -- $ -- -- $ (1,473)
--------- --------- --------- ----------
Balance December 31, 1995........................................... 900,00 $ 900 $ 27,450 $ (1,473)
========= ========= ========= ==========
Net (Loss) for the Year Ended December 31, 1996..................... -- -- -- $ (19,903)
--------- --------- --------- ----------
Balance December 31, 1996........................................... 900,000 $ 900 $ 27,450 $ (21,376)
========= ========= ========= ==========
</TABLE>
See accountant's report and notes to financial statements
F-69
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. NATURE OF BUSINESS
Video Calling Card, Inc. is a development stage company that was
incorporated on April 13, 1995 under the laws of the State of Nevada. A
development stage company is one in which most of the activities of the business
are devoted to raising capital, developing markets, and starting production. The
business purpose of the Company is to engage in the marketing of a unique new
promotional video to businesses to use for marketing their products or services
to select prospects.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are used by the Company in
preparing and presenting its financial statements:
A. INCOME TAXES
Although the Company recognizes the proper accounting for deferred income
taxes pursuant to SFAS 109, the Company has determined that the tax loss
generated in the years ended December 31, 1996 and 1995 is available for
carry forward to future years. However, a deferred tax benefit has not
been included in the financial statements because there is uncertainty
regarding the realization of this tax benefit in the future.
B. ORGANIZATION COSTS AND AMORTIZATION
At the time of Incorporation the Company incurred organization costs of
$400. In accordance with generally accepted accounting principles these
costs are being amortized over sixty (60) months beginning April 13,
1995.
C. STOCK OFFERING
In order to raise capital in the State of Nevada of $30,000 the Company
completed a securities offering on December 20, 1995 in which
300,000 shares of common stock were sold at $.10 per share. The net
proceeds will be used for the purpose of marketing a unique new
promotional video to businesses to use for marketing their products or
services to select prospects.
The offering costs, including selling costs, filing fees, and legal fees
have been treated as a reduction in the paid in capital amounts of the
corporation.
F-70
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets
Cash......................................................................................... $ 294 $ 1,227
--------- ---------
Total Current Assets....................................................................... $ 294 $ 1,227
Other Assets
Organization costs, less accumulated amortization of $240 in 1998
and $220 in 1997........................................................................... 160 180
--------- ---------
Total Other Assets......................................................................... 160 180
--------- ---------
TOTAL ASSETS..................................................................................... $ 454 $ 1,407
========= =========
</TABLE>
F-71
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS DEFICIT
Current Liabilities
Accounts payable....................................................................... $ 2,500 $ 2,500
--------- ----------
Total Current Liabilities............................................................ 2,500 2,500
Stockholders' Equity (Deficit)
Common stock, authorized 25,000,000 shares at $.001 par value, issued and outstanding
900,000 shares....................................................................... 900 900
Additional paid in capital............................................................. 27,450 27,450
(Deficit) Accumulated during development stage......................................... (30,396) (29,443)
--------- ----------
Total Stockholders Deficit........................................................... (2,046) (1,093)
--------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT.................................................. $ 454 $ 1,407
========= ==========
</TABLE>
F-72
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
SALES
Expenses
Amortization............................................................................... 20 20
Bank Charges............................................................................... 30 30
Professional Fees.......................................................................... 903 --
Real and office expense.................................................................... -- 400
--------- ---------
Total Expenses........................................................................... 953 450
--------- ---------
(LOSS) FROM OPERATIONS....................................................................... (953) (450)
OTHER INCOME (EXPENSE)
Loss on sale of furniture & equipment...................................................... -- (2,631)
--------- ---------
Total Other Income (Expense)............................................................. -- (2,631)
--------- ---------
NET (LOSS)................................................................................... $ (953) (3,081)
========= =========
</TABLE>
F-73
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss..................................................................................... $ (953) $ (3,081)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization............................................................ 20 20
Loss on sale of furniture and equipment.................................................. -- 2,631
(Decrease) in prepaid expenses........................................................... -- 400
--------- ---------
Total Adjustments............................................................................ 20 3,051
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...................................................... (933) (30)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES............................................................
Proceeds from the sale of equipment.......................................................... -- 400
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...................................................... -- 400
--------- ---------
Net Increase (Decrease) in Cash and Equivalents.............................................. (933) 370
Cash and Equivalents, beginning of year...................................................... 1,227 783
--------- ---------
Cash and Equivalents, March 31st............................................................. $ 294 $ 1,153
========= =========
</TABLE>
F-74
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
FROM DATE OF INCEPTION (APRIL 13, 1995) TO
MARCH 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- PAID IN
SHARES AMOUNT CAPITAL (DEFICIT)
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Original shares issued for cash....................................... 600,000 $ 600 $ 5,400 $ --
Proceeds from stock offering.......................................... 300,000 $ 300 $ 30,000 $ --
Stock offering costs.................................................. -- $ -- $ 7,950 $ --
Net (Loss) From the Period of Inception (April 13, 1995) Through
December 31, 1995................................................... -- $ -- $ -- $ (1,473)
--------- --------- --------- ----------
Balance December 31, 1995............................................. 900,000 $ 900 $ 27,450 $ (1,473)
Net (Loss) for the Year ended December 31, 1996....................... -- $ -- $ -- $ (19,903)
--------- --------- --------- ----------
Balance December 31, 1996............................................. 900,000 $ 900 $ 27,450 $ (21,376)
Net (Loss) for the Three Months ended March 31, 1997.................. -- $ -- $ -- $ (3,081)
--------- --------- --------- ----------
Balance March 31, 1997................................................ 900,000 $ 900 $ 27,450 $ (24,457)
Net (Loss) for the Nine Months ended December 31, 1997................ -- $ -- $ -- $ (4,986)
--------- --------- --------- ----------
Balance December 31, 1997............................................. 900,000 $ 900 $ 27,450 $ (29,443)
Net (Loss) for the Three Months ended March 31, 1995.................. -- $ -- $ -- $ (953)
--------- --------- --------- ----------
Balance March 31, 1996................................................ 900 $ 900 $ 27,450 $ (30,396)
========= ========= ========= ==========
</TABLE>
F-75
<PAGE>
VIDEO CALLING CARD, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. NATURE OF BUSINESS
Video Calling Card, Inc. is a development stage company that was incorporated on
April 13, 1995 under the laws of the State of Nevada. A development stage
company is one in which most of the activities of the business are devoted to
raising capital, developing markets, and starting production. The original
business purpose of the Company was to engage in the marketing of a unique
promotional video to businesses to use for marketing their products or services
to select prospects. In 1997 the Company sold its assets associated with the
video operation. The Company is now searching for new opportunities with
potential for profit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are used by the Company in
preparing and presenting its financial statements:
A. INCOME TAXES
Although the Company recognizes the proper accounting for deferred income
taxes pursuant to SFAS 109, the Company has determined that the tax loss
generated in the years ended December 31, 1997 and 1996 is available for
carry forward to future years. However, a deferred tax benefit has not
been included in the financial statements because there is uncertainty
regarding the realization of this tax benefit in the future.
B. ORGANIZATION COSTS AND AMORTIZATION
At the time of incorporation the Company incurred organization costs of
$400. In accordance with generally accepted accounting principles these
costs are being amortized over sixty (60) months beginning April 13,
1995.
C. STOCK OFFERING
In order to raise capital in the State of Nevada of $30,000 the Company
completed a securities offering on December 20, 1995 in which 300,000
shares of common stock were sold at $.10 per share. The net proceeds will
be used for the purpose of marketing a unique new promotional video to
businesses to use for marketing their products or services to select
prospects.
The offering costs, including selling costs, filing fees, and legal fees
have been treated as a reduction in the paid in capital amounts of the
corporation.
F-76
<PAGE>
INSIDE BACK COVER
Graphical depictions of the present business of customers of Netgateway, the
ICC Framework, supplies and customer interfaces, functional components offered
by Netgateway, and customers and suppliers. Text reads as follows:
"The Internet Commerce Center-TM-. Plug into the proven system that has
been refined through countless applications.
"Every business is now challenged by the immense opportunity of
eCommerce. But what is the best way to extend an enterprise to this new way
of doing business?
"Every eCommerce transaction requires user interfaces. Netgateway-TM-
customizes its existing software to the company's specifications.
"The existing business is now electronically wrapped within the ICC-TM-.
It acts as the "hub" of the system.
"Now Netgateway introduces and further customizes components of the
ICC-TM- that give the enterprise its unique eCommerce capability.
The enterprise with the ICC-TM- can now establish links, or "spokes" to
suppliers and customers with special protocols that enable entities to do
business electronically."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES IN ANY CIRCUMSTANCES UNDER WHICH THE OFFER OR
SOLICITATION IS UNLAWFUL.
NETGATEWAY, INC.
[LOGO]
UNTIL , 1999 ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred by Netgateway in connection
with the issuance and distribution of the securities being offered hereby,
excluding the underwriters' discounts and commissions (items marked with an
asterisk (*) represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 12,909
Legal Fees and Expenses........................................... 225,000*
Blue Sky Fees (including counsel fees)............................ 40,000*
NASD Filing Fees.................................................. 30,000*
NASDR Fees........................................................ 5,144
Accounting Fees and Expenses...................................... 100,000*
Transfer Agent and Registrar Fees................................. 10,000*
Printing and Engraving Expenses................................... 75,000*
Miscellaneous..................................................... 31,947*
---------
Total....................................................... $ 530,000*
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law, Section 102(b)(7), enables a corporation
in its original certificate of incorporation, or an amendment thereto validly
approved by stockholders, to eliminate or limit personal liability of members of
its Board of Directors for violations of a director's fiduciary duty of care.
However, the elimination or limitation shall not apply where there has been a
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct or a knowing violation of a law, the payment of a dividend or
approval of a stock repurchase which is deemed illegal or an improper personal
benefit is obtained. Our Certificate of Incorporation includes the following
language:
"The personal liability of the Directors of the Corporation is hereby
eliminated to the fullest extent permitted by paragraph (7) of Subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware as
the same may be amended and supplemented."
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be not opposed to the best interests of Netgateway,
and, with respect to any criminal action, had reasonable cause to believe his
conduct was lawful.
Article VII, Section 7 of the by-laws of Netgateway provides as follows:
"The corporation shall indemnify its officers, directors, employees, and
agents to the extent permitted by the General Corporation Law of Delaware."
Article EIGHTH of the certificate of incorporation of Netgateway, as
amended, permits indemnification of, and advancement of expenses to, among
others, officers and directors of Netgateway. Such Article provides as follows:
"(a) Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation or any of its direct or
indirect subsidiaries or is or
II-1
<PAGE>
was serving at the request of the Corporation as a director, officer,
employee, or agent of any other corporation or of a partnership, joint
venture, trust, or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than permitted prior thereto), against all expense, liability, and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators; provided, however, that, except as provided
in paragraph (c) of this Article EIGHTH with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the board of directors of the Corporation.
"(b) The right to indemnification conferred in paragraph (a) of this
Article EIGHTH shall include the right to be paid by the Corporation the
expenses incurred in defending any proceeding for which such right to
indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication") that such indemnitee is not entitled to
be indemnified for such expenses under this Article EIGHTH or otherwise.
"(c) The rights to indemnification and to the advancement of expenses
conferred in paragraphs (a) and (b) of this Article EIGHTH shall be contract
rights. If a claim under paragraph (a) or (b) of this Article EIGHTH is not
paid in full by the Corporation within sixty days after a written claim has
been received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a
suit brought by an indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) any suit by the Corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of
the indemnitee is proper in the circumstances because the indemnitee has met
the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its board of directors, independent legal counsel, or its stockholders) that
the indemnitee has not met
II-2
<PAGE>
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any
suit brought by the indemnitee to enforce a right to indemnification or to
an advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article EIGHTH or otherwise, shall be on
the Corporation.
"(d) The rights to indemnification and to the advancement of expenses
conferred in this Article EIGHTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, this
certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors, or otherwise.
"(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the Corporation or
another corporation, partnership, joint venture, trust, or other enterprise
against any expense, liability, or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability, or loss under the Delaware General Corporation Law.
"(f) The Corporation's obligation, if any, to indemnify any person who
was or is serving as a director, officer, employee, or agent of any direct
or indirect subsidiary of the Corporation or, at the request of the
Corporation, of any other corporation or of a partnership, joint venture,
trust, or other enterprise shall be reduced by any amount such person may
collect as indemnification from such other corporation, partnership, joint
venture, trust, or other enterprise.
"(g) Any repeal or modification of the foregoing provisions of this
Article EIGHTH shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time
of such repeal or modification."
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Netgateway
pursuant to the foregoing provisions or otherwise, Netgateway has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 to the Registration Statement for certain provisions regarding
indemnification of Netgateway, its officers and directors, the Underwriters, and
any controlling persons by the Underwriters against certain liabilities for
information furnished by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the numbers
of shares of common stock sold by Netgateway, the number of options issued by
Netgateway, and the principal amount of debt instruments issued by Netgateway
since March 4, 1998 (inception), the consideration received by Netgateway for
such shares, options and debt instruments and information relating to the
section of the Securities Act or rule of the Securities and Exchange Commission
under which exemption from registration was claimed. None of these securities
was registered under the Securities Act. Except as otherwise indicated, no sales
of securities involved the use of an underwriters and no commissions were paid
in connection with the sale of any securities.
From Netgateway's inception on March 4, 1998 through June 2, 1998,
Netgateway issued to its founding stockholders a total of 2,800,000 shares of
common stock at a price of $.001 per share.
II-3
<PAGE>
From Netgateway's inception on March 4, 1998 to June 30, 1998, Netgateway
issued 600,000 shares of common stock to several of its existing stockholders in
order to reimburse such stockholders for satisfying $400,000 of obligations of
Netgateway. The certificates evidencing the shares of common stock were
appropriately legended. In the opinion of Netgateway, the offer and the sale of
the shares was exempt by virtue of Section 4(2) of the Securities Act and the
rules promulgated thereunder. Each of these stockholders were "accredited
investors" as defined in Rule 501 under the Securities Act.
In April 1998, Netgateway issued 1,000,000 shares of common stock to
S.T.E.P.S., Inc., the primary stockholder of which is Scott Beebe, a Director of
Netgateway, in connection with the granting by Steps to Netgateway of a
sublicense relating to proprietary courseware. The certificates evidencing the
shares of common stock were appropriately legended. In the opinion of
Netgateway, the offer and the sale of the shares was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder.
In April 1998, Netgateway issued 1,900,000 shares of common stock to Vision
Holdings, Inc. as consideration of the cancellation of $300,000 of indebtedness
owed by Netgateway to Vision. The certificates evidencing the shares of common
stock were appropriately legended. In the opinion of Netgateway, the offer and
the sale of the shares was exempt by virtue of Section 4(2) of the Securities
Act and the rules promulgated thereunder.
In April 1998, Netgateway issued 100,000 shares of common stock to Eric
Richardson in payment for legal consulting services. Of such shares of common
stock, 36,000 vested immediately and 64,000 vested upon performance of
consulting services by Mr. Richardson. An aggregate of 52,000 shares of common
stock were issued to Mr. Richardson pursuant to this arrangement. The
certificates evidencing the shares of common stock were appropriately legended.
In the opinion of Netgateway, the offer and the sale of the shares was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In June 1998, Netgateway issued 100,000 shares to Alex Chafetz, an employee
of Netgateway, in payment for services. The certificates evidencing the shares
of common stock were appropriately legended. In the opinion of Netgateway, the
offer and the sale of the shares was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
In June 1998, Netgateway issued 184,000 shares of common stock to
unaffiliated third party creditors of Netgateway as consideration of the
cancellation of $185,333 of indebtedness owed by Netgateway to such creditors.
The certificates evidencing the shares of common stock were appropriately
legended. In the opinion of Netgateway, the offer and the sale of the shares was
exempt by virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
On June 2, 1998, Netgateway issued 400,000 shares of common stock (including
contingent issuances) in connection with the acquisition of Digital Genesis. The
certificates evidencing the shares of common stock were appropriately legended.
In the opinion of Netgateway, the offer and the sale of the shares was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In June 1998, Netgateway closed a private offering of 687,000 shares of its
common stock. The shares were sold at the price of $1.00 per share, resulting in
gross proceeds of $687,000. Each of the investors agreed to acquire the shares
for investment purposes only and not with a view to distribution. The
certificates evidencing the shares of common stock were appropriately legended.
In the opinion of Netgateway, the offer and the sale of the shares was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder. Of the investors in the offering 16 were "accredited investors" as
defined in Rule 501 under the Securities Act and 11 were not accredited
investors.
In connection with the Legal Fees Services Option Agreement, dated as of
June 3, 1998 with Nida & Maloney P.C., Netgateway issued to such firm options to
purchase 100,000 shares of common
II-4
<PAGE>
stock (subsequently adjusted through certain antidilution provisions to be
240,000 shares of common stock) at a strike price of $2.50 per share. In the
opinion of Netgateway, the offer and the sale of the shares was exempt by virtue
of Section 4(2) of the Securities Act and the rules promulgated thereunder.
During the period from July 1998 through March 1999, Netgateway granted to
its employees stock options exercisable for an aggregate of 1,317,559 shares of
common stock at prices ranging from $2.17 to $5.34 per share.
In July 1998, Netgateway closed a private offering of 1,022,800 units, each
unit consisting of one share of common stock and one common stock purchase
warrant entitling the holder to acquire one share of common stock at a price of
$4.00 per share (subsequently repriced to $2.00 per share). The units were sold
at $2.00 per unit. These warrants were exercisable through September 30, 1998,
but were extended through October 30, 1998. Warrants exercisable for an
aggregate of 132,100 shares were exercised prior to expiration of the warrants.
The certificates evidencing the securities underlying the units were
appropriately legended. In the opinion of Netgateway, the offer and the sale of
the units (and the securities constituting the units) was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder. Of the
investors in the offering 75 were "accredited investors" as defined in Rule 501
under the Securities Act and 22 were not accredited investors.
In connection with the Consulting and Advisory Agreement, dated October 20,
1998, with Burchmont Equities Group, Inc., Netgateway issued 100,000 shares of
common stock the Burchmont Equities Group, Inc. in payment for advisory
services. The shares will vest upon the happening of all of the following
events: (1) Netgateway becomes listed on the Nasdaq SmallCap Market, (2)
Netgateway files a Registration Statement on Form S-1 for its existing shares
including these shares, and (3) Netgateway files a Form 10 and becomes a 12(g)
reporting company.
On October 20, 1998, Netgateway issued warrants exercisable for an aggregate
of 225,000 shares of common stock to Dean Dumont and 75,000 shares of common
stock to Maylena Burchmont in payment of consulting services. The certificates
evidencing the warrants and any securities underlying the warrants were
appropriately legended. In the opinion of Netgateway, the offer and the sale of
the units (and the securities constituting the units) was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder.
On October 21, 1998, Netgateway issued warrants exercisable for an aggregate
of 300,000 shares of common stock to Howard Effron in payment of consulting
services. The certificates evidencing the warrants and any securities underlying
the warrants were appropriately legended. In the opinion of Netgateway, the
offer and the sale of the units (and the securities constituting the units) was
exempt by virtue of Section 4(2) of the Securities Act and the
rules promulgated thereunder.
In connection with a Consulting and Advisory Agreement with Richard Berns,
on October 21, 1998, Netgateway issued 25,000 shares of common stock in payment
of advisory services. The certificates evidencing the securities underlying the
units were appropriately legended. In the opinion of Netgateway, the offer and
the sale of the units (and the securities constituting the units) was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In payment for merger and acquisition advisory services related to the
acquisition of Spartan Multimedia, in November 1998, Netgateway issued 10,000
shares of common stock to the Chaffetz Family Trust. The certificates evidencing
the securities underlying the units were appropriately legended. In the opinion
of Netgateway, the offer and the sale of the units (and the securities
constituting the units) was exempt by virtue of Section 4(2) of the Securities
Act and the rules promulgated thereunder.
On November 20, 1998, Netgateway issued warrants exercisable for an
aggregate of (i) 50,000 shares to each of Keith D. Freadhoff, Scott Beebe,
Donald D. Danks, and Michael Vanderhoff and
II-5
<PAGE>
(ii) 100,000 shares to Michael Khaled. The certificates evidencing the warrants
and any securities underlying the warrants were appropriately legended. In the
opinion of Netgateway, the offer and the sale of the units (and the securities
constituting the units) was exempt by virtue of Section 4(2) of the Securities
Act and the rules promulgated thereunder.
On November 20, 1998, Netgateway issued warrants exercisable for an
aggregate of 100,000 shares to Ronald Spire in payment for consulting services.
The certificates evidencing the warrants and any securities underlying the
warrants were appropriately legended. In the opinion of Netgateway, the offer
and the sale of the units (and the securities constituting the units) was exempt
by virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In connection with the Consulting and Advisory Agreement, dated November 1,
1998, with North Coast Securities Corp., Netgateway issued 10,000 shares of
common stock to North Coast Securities Corp. in payment for for advisory
services. The certificates evidencing the shares of common stock were
appropriately legended. In the opinion of Netgateway, the offer and the sale of
the units (and the securities constituting the units) was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder.
In connection with a Consulting and Advisory Agreement with Gerold Czuchna,
on December 14, 1998, Netgateway issued 5,000 shares of common stock in payment
of advisory services. The certificates evidencing the securities underlying the
units were appropriately legended. In the opinion of Netgateway, the offer and
the sale of the units (and the securities constituting the units) was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
In connection with the Consulting Agreement, dated as of December 24, 1998,
between Netgateway, Inc. and Glashow Associates LLC, Netgateway issued 170,000
shares of common stock and warrants exercisable for an aggregate of 150,000
shares to such firm in payment for consulting services. The certificates
evidencing the shares of common stock were appropriately legended. In the
opinion of Netgateway, the offer and the sale of the units (and the securities
constituting the units) was exempt by virtue of Section 4(2) of the Securities
Act and the rules promulgated thereunder.
In connection with acquisition of Spartan Multimedia, in January 1999,
StoresOnline.com Ltd. issued 371,429 shares of class B common stock, each of
which is convertible into one share of Netgateway common stock. The certificates
evidencing the shares of common stock were appropriately legended. In the
opinion of Netgateway, the offer and the sale of the units (and the securities
constituting the units) was exempt by virtue of Section 4(2) of the Securities
Act and the rules promulgated thereunder.
In connection with the Consulting Agreement, dated as of January 26, 1999,
with Stock Maker, Inc., Netgateway issued 40,000 shares to such firm in payment
for advisory services. The certificates evidencing the shares of common stock
were appropriately legended. In the opinion of Netgateway, the offer and the
sale of the units (and the securities constituting the units) was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder. This consulting agreement was terminated in June 1999 and Stock
Maker returned these shares to the authorized, but unissued, common stock of
Netgateway.
In connection with Netgateway's then pending private offering of convertible
debentures, on February 15, 1999, Netgateway issued warrants exercisable for an
aggregate of (i) 129,000 shares to Dean Dumont,(ii) 12,750 shares to Todd
Torneo, (iii) 3,000 shares to Tradeway Securities Group, (iv) 4,250 to John
Borcich, (v) 66,800 shares to Y2K Capital, (vi) 35,000 to Roxanne Melotte, and
(vii) 32,500 shares to Michael Vanderhoff. The certificates evidencing the
warrants and any securities underlying the warrants were appropriately legended.
In the opinion of Netgateway, the offer and the sale of the units (and the
securities constituting the units) was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
II-6
<PAGE>
In payment for financial consulting services, on February 15, 1999,
Netgateway issued an aggregate of 30,000 shares of common stock to two
individuals. The certificates evidencing the shares of common stock were
appropriately legended. In the opinion of Netgateway, the offer and the sale of
the units (and the securities constituting the units) was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder. These
shares were subsequently returned to the authorized, but unissued, common stock
of Netgateway.
In March 1999, Netgateway closed a private offering of $1 million principal
amount of convertible debentures for gross proceeds of $1 million. The
debentures are convertible into shares of common stock at the conversion price
of $2.50 per share. These debentures mature December 31, 1999. The certificates
evidencing debentures, as well as any shares of common stock issued upon the
conversion thereof, were appropriately legended. In the opinion of Netgateway,
the offer and the sale of the debentures was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder. All of the
investors in the offering were "accredited investors" as defined in Rule 501
under the Securities Act.
On March 17, 1999, Netgateway issued warrants exercisable for an aggregate
of 25,000 shares of common stock to XOOM.com, Inc. These warrants were
exercisable at $12.00 per share and were exercisable on a cashless basis. The
warrants were exercised in full on a cashless basis on April 14, 1999 for an
aggregate of 2,570 shares of common stock. The certificates evidencing the
warrants, as well as any shares of common stock issued upon the exercise
thereof, were appropriately legended. In the opinion of Netgateway, the offer
and the sale of the debentures was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
On March 31, 1999, Netgateway issued 600 shares of common stock to Steve
Jorgenson, a professional golfer, in connection with Mr. Jorgenson acting as a
spokesman for Netgateway.
On March 31, 1999, Netgateway approved the issuance of 5,000 shares of
common stock to Gerold Czuchna and 5,000 shares of common stock to Web Walker
Media Link, in connection with Mr. Czuchna performing consulting services. The
certificates evidencing the shares were appropriately legended. In the opinion
of Netgateway, the offer and sale of the shares was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder.
On March 31, 1999, Netgateway approved the issuance of 10,000 shares of
common stock to Jason E. Chaffetz and Julie Marie Chaffetz, Trustees of the
Chaffetz Family Trust, udo 4/14/96, as compensation for Mr. Chaffetz's efforts
in connection with the acquisition of Spartan Multimedia, Inc. The certificates
evidencing the shares were appropriately legended. In the opinion of Netgateway,
the offer and sale of the shares was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
In April 1999, Netgateway closed a private offering of 329,000 shares of its
common stock. The shares were sold at the price of $3.00 per share, resulting in
gross proceeds of $987,000. Each of the investors agreed to acquire the shares
for investment purposes only and not with a view to distribution. The
certificates evidencing the shares of common stock were appropriately legended.
In the opinion of Netgateway, the offer and the sale of the shares was exempt by
virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder. All of the investors in the offering were "accredited investors" as
defined in Rule 501 under the Securities Act.
On April 1, 1999, Netgateway issued warrants exercisable for an aggregate of
5,000 shares of common stock to Andrew Glashow in order to induce such
individual to make a loan to Netgateway. The certificates evidencing the
warrants were appropriately legended. In the opinion of Netgateway, the offer
and the sale of the shares was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
II-7
<PAGE>
On April 1, 1999, Netgateway issued warrants exercisable for an aggregate of
26,050 shares of common stock to Richard Berns in connection with Netgateway's
convertible debenture private offering. The certificates evidencing the warrants
were appropriately legended. In the opinion of Netgateway, the offer and the
sale of the shares was exempt by virtue of Section 4(2) of the Securities Act
and the rules promulgated thereunder.
On April 16, 1999, Netgateway authorized the issuance of warrants to
purchase 50,000 shares of common stock of Netgateway to each of Donald Danks,
Keith Freadhoff, Michael Vanderhoof and Scott Beebe, all in connection with the
settlement of a dispute between Michael Khaled and Netgateway concerning the
issuance of certain common stock of the corporation to Khaled. In addition,
Netgateway authorized the issuance of a warrant to purchase 100,000 shares of
common stock of Netgateway to Michael Khaled in connection with the settlement.
The certificates evidencing the warrants were appropriately legended. In the
opinion of Netgateway, the offer and sale of the warrants was exempt by virtue
of Section 4(2) of the Securities Act and the rules promulgated thereunder.
On April 26, 1999, Netgateway issued 25,000 shares of common stock to Berns
Capital, L.P. for consulting services provided by Richard A. Berns. The
certificates evidencing the shares were appropriately legended. In the opinion
of Netgateway, the offer and sale of the shares was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder.
On April 26, 1999, Netgateway issued 25,000 shares of common stock to Todd
Torneo for consulting services provided by Mr. Torneo. The certificates
evidencing the shares were appropriately legended. In the opinion of Netgateway,
the offer and sale of the shares was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
On April 26, 1999, Netgateway issued 25,000 shares of common stock to Joseph
Py in consideration for Mr. Py making available $150,000 to Netgateway. The
certificates evidencing the shares were appropriately legended. In the opinion
of Netgateway, the offer and sale of the shares was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder.
On April 26, 1999, Netgateway issued an aggregate of 30,000 shares of common
stock in order to induce Joseph Py and Robert Ciri to make loans to Netgateway.
The certificates evidencing the shares of common stock were appropriately
legended. In the opinion of Netgateway, the offer and the sale of the debentures
was exempt by virtue of Section 4(2) of the Securities Act and the
rules promulgated thereunder.
On May 3, 1999, Netgateway issued warrants exercisable for an aggregate of
5,000 shares of common stock to GMR for consulting services. The certificates
evidencing the warrants were appropriately legended. In the opinion of
Netgateway, the offer and the sale of the shares was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated thereunder.
On May 15, 1999, Netgateway issued to Shopping Planet 35,000 shares of
common stock in connection with the acquisition by Netgateway of the technology
of Shopping Planet.
On May 18 and June 4, 9, and 22, 1999, Netgateway closed a private offering
of an aggregate of 57.6 units, and in August and on September 24, 1999
Netgateway conducted another closing of this offering of 71.57 units, in each
case each unit consisting of $50,000 principal amount of Series A 12% Senior
Notes due 2000 and 5,000 shares of common stock. The notes mature on the earlier
of April 30, 2000 and the date of the closing of this offering. The units were
sold at the price of $50,000 per unit, resulting in gross proceeds of
$6,608,500. Each of the investors agreed to acquire the shares for investment
purposes only and not with a view to distribution. The certificates evidencing
the securities underlying the units were appropriately legended. In the opinion
of Netgateway, the offer and the sale of the shares was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder. All of
the investors in the offering were "accredited investors" as defined in
Rule 501 under the Securities Act. In addition, in connection with this private
offering, Netgateway granted to
II-8
<PAGE>
Cruttenden Roth and the other agents responsible for placing such securities
warrants exercisable for an aggregate of 147,750 shares of common stock at an
exercise price of $10.00 per share.
In June 1999, Netgateway issued to Nida & Maloney, a law firm, three units
identical to the units described in the immediately preceding paragraph, in
satisfaction of its obligation for legal fees.
On June 15, 1999, Netgateway approved the issuance of 70,000 shares of
common stock to Glashow Associates LLC in consideration for consulting services
rendered to Netgateway, which shares were issued at the direction of Glashow
Associates as follows: 30,000 shares to Andrew Glashow, 3,000 shares to Diana
Glashow, 2,000 shares to Bernard Brown and 35,000 shares to Robert Ciri. In
connection with the services rendered by Glashow Associates, Netgateway also
approved the issuance of 150,000 warrants for the purchase of common stock in
the following amounts: 37,500 to Andrew Glashow, 37,500 to Robert Ciri and
75,000 to Corporate Management Consultants, Inc. The certificates evidencing the
securities were appropriately legended. In the opinion of Netgateway, the offer
and sale of the securities was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
On June 16, 1999, Netgateway approved the issuance of 125,000 warrants for
the purchase of common stock to Howard P. Effron for consulting services
provided by Mr. Effron, which warrants were issued as follows at the direction
of Mr. Effron: 92,000 to Mr. Effron and 33,000 to Richard A. Berns. The
certificates evidencing the shares were appropriately legended. In the opinion
of Netgateway, the offer and sale of the warrants was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder.
On July 26, 1999, Netgateway issued 50,000 shares of common stock and
warrants for the purchase of up to an additional 200,000 shares of common stock
to MediaOne of Colorado, Inc. in connection with the consummation of a business
transaction between Netgateway and MediaOne. The certificates evidencing the
securities were appropriately legended. In the opinion of Netgateway, the offer
and sale of the securities was exempt by virtue of Section 4(2) of the
Securities Act and the rules promulgated thereunder.
On July 26, 1999, Netgateway issued 700 shares of common stock to Steve
Jorgenson, a professional golfer, in connection with Mr. Jorgenson acting as a
spokesman for Netgateway. The certificates evidencing the shares were
appropriately legended. In the opinion of Netgateway, the offer and sale of the
shares was exempt by virtue of Section 4(2) of the Securities Act and the rules
promulgated thereunder.
On July 26, 1999, Netgateway issued 28,000 warrants for purchase of common
stock to Burchmont Equities Group for consulting services performed. The
certificates evidencing the warrants were appropriately legended. In the opinion
of Netgateway, the offer and sale of the warrants was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated thereunder.
In October 1999, Netgateway issued to each of Keith D. Freadhoff, its
Chairman of the Board of Directors, Donald M. Corliss, its President, and David
Bassett-Parkins, its Chief Financial and Chief Operating Officer, 400,000 shares
of common stock, subject to forfeiture in exchange for options granted to such
individuals under its existing stock option plans.
In October 1999, Netgateway issued an aggregate of 962,444 shares of common
stock upon the exercise on a cashless basis of an aggregate of
1,184,730 warrants then outstanding.
Each of such transactions was exempt from registration under the Securities
Act by virtue of the provisions of Section 4(2) and/or Section 3(b) of the
Securities Act. Each purchaser of the securities described below has represented
that he/she/it understands that the securities acquired may not be sold or
otherwise transferred absent registration under the Securities Act or the
availability of an exemption
II-9
<PAGE>
from the registration requirements of the Securities Act, and each certificate
evidencing the securities owned by each purchaser bears or will bear upon
issuance a legend to that effect.
ITEM 16. EXHIBITS
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1.1** Form of Underwriting Agreement
3.1** Certificate of Incorporation
3.2** Bylaws
3.3 Certificate of Ownership and Merger
3.4 Articles of Merger
4.1** Form of Representatives' Warrant
4.2 Form of Common Stock Certificate
5.1 Opinion of Brock Silverstein LLC
10.1** Form of Employment Agreement, dated as of January 1, 1999, between Netgateway, Inc. and Keith D.
Freadhoff
10.2** Form of Employment Agreement, dated as of January 1, 1999, between Netgateway, Inc. and Donald M.
Corliss, Jr.
10.3** Form of Employment Agreement, dated as of January 1, 1999, between Netgateway, Inc. and David
Bassett-Parkins
10.4** Form of Employment Agreement, dated as of January 1, 1999, between Netgateway, Inc. and Hanh Ngo
10.5** Form of Employment Agreement, dated as of April 5, 1999, between Netgateway, Inc. and Craig Gatarz
10.6** 1998 Stock Compensation Program
10.7** 1998 Stock Option Plan for Senior Executives
10.8** Office Lease, dated as of June 26, 1998, between Netgateway, Inc. and Pacific Tower Associates
10.9** Form of Internet Data Center Services Agreement, between Netgateway, Inc. and Exodus Communications,
Inc.
10.10** Form of Secured Convertible Debenture due December 31, 1999
10.11** Agreement and Plan of Reorganization, dated as of June 2, 1998, among Netgateway, Infobahn
Technologies, LLC, Video Calling Card, Inc., the Netgateway Shareholders and the Video Majority
Shareholder
10.12** Software Assignment and Grant Back Limited License Agreement, dated as of November 16, 1998, between
Netgateway and Shopping Planet
10.13** Stock Purchase Agreement, dated as of November 1, 1998, among StoresOnline.com, Ltd., Netgateway,
Inc. and the Selling Stockholders
10.14** Amendment to Stock Purchase Agreement, among StoresOnline.com, Ltd., Netgateway, Inc. and the Selling
Stockholders
10.15** Form of Financial Consulting Agreement.
10.16** Form of Series A 12% Senior Note due 2000
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
---------
<S> <C>
10.17** Letter Agreement, dated June 3, 1998, between Netgateway and Nida & Maloney, including Terms of
Retention and Legal Fee Services Option
10.18** Consulting and Advisory Agreement, dated October 20, 1998, between Burchmont Equities Group, Inc. and
Netgateway
10.19** Consulting and Advisory Agreement, dated November 1, 1998, between North Coast Securities Corp. and
Netgateway
10.20** Consulting Agreement, dated December 24, 1998, between Netgateway and Glashow Associates
10.21** Consulting Agreement, dated July 1, 1999, between Netgateway and Glashow Associates LLC
10.22** Amended and Restated Subordinated Secured Promissory Note, dated August 28, 1998, from Admor Memory
Corp. and Netgateway, including the Security Agreement, dated as of August 28, 1998, among Admor
Memory Corp., Admor Memory, Ltd. and Netgateway
10.23[R] Agreement, dated February 25, 1999, between Netgateway, Inc. and Xoom.com
10.24[R] Electronic Commerce Services Agreement, dated as of March 24, 1999, between Netgateway, Inc. and CB
Richard Ellis
10.25[R] Reseller and Mall Agreement, dated as of May 20, 1999, among Netgateway, Inc., StoresOnline.com, Inc.
and WirelessOne, Inc.
10.26[R] Electronic Commerce Services Agreement, dated as of June 1999, between Netgateway, Inc. and Reliant
Innovations, Inc.
10.27[R] Cable Reseller and Mall Agreement, dated as of July 26, 1999, among StoresOnline.com, Inc.,
Netgateway, Inc. and MediaOne of Colorado, Inc.
10.28[R] Stock Purchase Agreement, dated as of July 16, 1999, between Netgateway, Inc. and MediaOne of
Colorado, Inc.
10.29[R] Distributor Mall/Storefront Agreement, dated as of August 25, 1999, between Netgateway, Inc. and
BuySellBid.com, Inc.
10.30[R] Joint Marketing and Promotion Agreement, dated August 25, 1999, between Netgateway, Inc. and
BuySellBid.com, Inc.
10.31[R] Cable Reseller and Mall Agreement, dated as of August 30, 1999 among Netgateway, Inc., StoresOnline
and B2BStores.com, Inc.
10.32[R] Electronic Commerce Services Agreement, dated as of July 28, 1999, between Netgateway, Inc. and
B2BStores.com, Inc.
10.33** Form of Employment Agreement between Netgateway, Inc. and Roy W. Camblin III
10.34[R] Reseller and Mall Agreement dated as of July 27, 1999, among Frontiervision, Netgateway, Inc. and
StoresOnline.com, Inc.
10.35** 1999 Stock Option Plan for Non-Executives.
10.36** Employment Agreement, dated as of November 18, 1998, between Netgateway and Luis Marcelo Povalo
10.37** Consulting Agreement, dated as of October 14, 1998, between Netgateway, Inc. and Richard A. Beras
10.38** Letter, dated December 9, 1998, from Netgateway, Inc. to Jerry Czuchan
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
---------
<S> <C>
10.39** Promissory Note, dated March 15, 1999, in the principal amount of $50,000 payable to Joseph Py
10.40** Promissory Note, dated March 15, 1999, in the principal amount of $30,000 payable to Robert E. Ciri
10.41** Common Stock Purchase Warrant, dated November 20, 1998, issued to Sean Beebe
10.42** Common Stock Purchase Warrant, dated November 20, 1998, issued to Donald Danks
10.43** Common Stock Purchase Warrant, dated November 20, 1998, issued to Keith D. Freadhoff
10.44** Common Stock Purchase Warrant, dated November 20, 1998, issued to Michael V. Vanderhoof
10.45** Master Trust--Oceangate Trust, dated as of December 10, 1998, among Keith Freadhoff, as the Trustee
and the Beneficiaries
10.46** Form of Individual Trust--Oceangate Trust, between Keith D. Freadhoff as Trustor, and Keith D.
Freadhoff, as Trustee, for the benefit of the Beneficiary
10.47** Courseware Reproduction License Agreement, dated as of October 29, 1997, between Prosoft I-Net
Solutions, Inc. and S.T.E.P.S., as amended by Amendment No. 1 to the Courseware Reproduction License
Agreement, and as amended by Amendment No. 2 to the Courseware Reproduction License Agreement
10.48** Assignment of License, dated as of April 1, 1998, between S.T.E.P.S. and Netgateway, Inc.
10.49** Courseware Reproduction License Agreement, dated as of January 20, 1997, between Prosoft I-Net
Solutions, Inc. and Training Resources International, Inc., as amended by Amendment No. 1 to the
Courseware Reproduction License Agreement
10.50** Sublicense Agreement, dated as of March 27, 1998 between Netgateway and Training Resources
International, Inc.
10.51** Settlement and Release Agreement, entered into April 19, 1999 among Prosoft Training.com (formerly
Prosoft I-Net Solutions, Inc., Training Resources International, Inc., S.T.E.P.S., Netgateway, Inc.,
Michael Khaled, Scott Beebe and Donald Danks
10.52** Form of Employment Agreement, dated as of June 1, 1999 between Netgateway, Inc. and John Wendel
10.53 Internet Services Agreement, dated as of October 25, 1999 between Netgateway Inc. and Bergen Brudswig
Drug Company
23.1 Consent of KPMG LLP
23.2** Consent of KPMG LLP
23.3 Consent of Allan Hogenson, Chartered Accountant
23.4 Consent of Ted A. Madsen, Certified Public Accountant
23.5 Consent of Brock Silverstein LLC (contained in the Opinion filed as Exhibit 5.1)
24.1** Power of Attorney
24.3** Power of Attorney of William Brock
24.4** Power of Attorney of Roy W. Camblin III
24.5** Consent of Roy W. Camblin III
24.6** Consent of James Demetriades
24.7** Consent of John Dillon
</TABLE>
II-12
<PAGE>
(b) Please note that certain confidential technical and commercial
information has been redacted from some of the exhibits attached to this Form
S-1 in order to preserve the confidentiality of such information. All of the
confidential information which has been redacted is on file with the Securities
and Exchange Commission and may be obtained in accordance with the Freedom of
Information Act. Exhibits to this Form S-1 which have had confidential
information redacted are indicated as follows on the exhibit list above: "[R]."
Within the exhibits to this Form S-1, redacted material is indicated by the
following sign where such redacted text would have appeared in the relevant
exhibit: "[**REDACTED**]"
- ------------------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The Registrant hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this registration statement as of
the time the Commission declared it effective.
(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement relating to the securities offered therein,
and the offering of such securities at that time as the initial bona fide
offering thereof.
(c) The Registrant hereby undertakes that it will provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(d) The Registrant hereby undertakes to supplement the prospectus, after the
expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the underwriters is to be made on terms differing from those set
forth on the cover page of this prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
(e) The Registrant hereby undertakes that it will:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement; (i) Include any
Prospectus required by Section 10(a)(3)
II-13
<PAGE>
of the Securities Act of 1933; (ii) Reflect in the Prospectus any facts or
events arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 200 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; (iii) Include any material information which with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) For the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) Remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
II-14
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this
Pre-Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the city of Long Beach,
California on November 12, 1999.
<TABLE>
<S> <C> <C>
NETGATEWAY, INC.
By: /s/ KEITH D. FREADHOFF
-----------------------------------------
Name: Keith D. Freadhoff
Title: Chairman of the Board of
Directors
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ KEITH D. FREADHOFF
- ------------------------------ Chairman of the Board of November 12, 1999
Keith D. Freadhoff Directors
Chief Executive Officer
* and Chief Information
- ------------------------------ Officer (Principal November 12, 1999
Roy W. Camblin III Executive Officer)
Chief Financial Officer,
* Chief Operating Officer,
- ------------------------------ and Director (Principal November 12, 1999
David Bassett-Parkins Financial and Accounting
Officer)
*
- ------------------------------ President and Director November 12, 1999
Donald M. Corliss, Jr.
*
- ------------------------------ Director November 12, 1999
Scott Beebe
*
- ------------------------------ Director November 12, 1999
William Brock
*
- ------------------------------ Director November 12, 1999
Ronald Spire
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEITH D. FREADHOFF
-------------------------
Keith D. Freadhoff
ATTORNEY-IN-FACT
</TABLE>
II-15
<PAGE>
EXHIBIT 3.3
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"NETGATEWAY, INC.", A NEVADA CORPORATION, WITH AND INTO "NETGATEWAY,
INC." UNDER THE NAME OF "NETGATEWAY, INC.", A CORPORATION ORGANIZED AND
EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN
THIS OFFICE THE SECOND DAY OF NOVEMBER, A.D. 1999, AT 2 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL] /s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 0060072
DATE: 11-02-99
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
NETGATEWAY, INC., A NEVADA CORPORATION
WITH AND INTO
NETGATEWAY, INC., A DELAWARE CORPORATION
(Pursuant to Section 253 of the Delaware General Corporation Law)
NETGATEWAY, INC., a Delaware corporation (the "Corporation"), does
hereby certify:
FIRST: That the Corporation was incorporated on May 12, 1999
pursuant to the General Corporation Law of the State of
Delaware (the "DGCL").
SECOND: That all of the outstanding shares of common stock, par value
$.001 per share (the "Corporation Common Stock"), of the
Corporation is owned of record by Netgateway, Inc., a Nevada
corporation (the "Parent"), and the Corporation has issued and
outstanding no class of capital stock other than the Corporation
Common Stock.
THIRD: That the Corporation, the surviving Delaware corporation, by
the following resolutions of the Board of Directors thereof
duly adopted by unanimous written consent without a meeting,
pursuant to Section 141(f) of the DGCL, duly adopted as of
October 21, 1999, determined to merge itself with the Parent
so as to be the surviving corporation of such merger, in
accordance with the terms, and subject to the conditions, set
forth in such resolutions:
WHEREAS, Netgateway, Inc., a Nevada corporation (the
"Parent") is the legal and beneficial owner of all of the
outstanding shares of common stock, par value $.001 per share
(the "Corporation Common Stock"), of the Corporation; and
WHEREAS, the Corporation Common Stock is the only issued
and outstanding class of capital stock of Corporation; and
WHEREAS, the Corporation desires to merge itself with
the Parent so as be the surviving corporation of such merger
pursuant to the
<PAGE>
provisions of Section 253 of the General Corporation Law of
the State of Delaware.
NOW, THEREFORE, BE IT
RESOLVED, that, subject to the approval of the
stockholders of the Parent, the Parent merge itself with and
into the Corporation (the "Merger"), which will assume all of
the obligations of the Parent.
RESOLVED, that the terms and conditions of the proposed
Merger are as follows: Upon the Merger becoming effective,
the outstanding Corporation Common Stock, all of which had
therefore been held by the Parent, shall be canceled and
shall cease to be outstanding, without any payment being made
in respect thereof; each share of common stock, no par value,
of the Parent (the "Parent Common Stock") outstanding
immediately prior to the effectiveness of the Merger shall,
upon the effectiveness of the Merger, without further act or
deed, be deemed to represent one share of Corporation Common
Stock; upon the surrender by any stockholder of the Parent of
such stockholder's certificates formerly representing
outstanding shares of Parent Common Stock, the Corporation
shall issue to such stockholder a stock certificate
representing an equal number of shares of Corporation Common
Stock; upon consummation of the Merger, the directors of
Parent shall become the sole directors of the Corporation
until the election and qualification of their respective
successors, and the officers of the Parent shall hold such
officers of the Corporation, subject to the discretion of the
Board of Directors.
RESOLVED, that upon the Merger becoming effective, the
1998 Stock Compensation Plan, 1998 Stock Option Plan for
Executives and 1999 Stock Option Plan for Non-Executives of
Parent shall be adopted as the 1998 Stock Compensation Plan,
1998 Stock Option Plan for Executives and 1999 Stock Option
Plan for Non-Executives of the Corporation.
RESOLVED, that, subject to the requirements of the law
of the State of Delaware, the officers of the Corporation be,
and each of them with full authority to act without the
others hereby is, authorized and empowered to do and perform,
or cause to be done and performed, all such further acts,
deeds and things, and to prepare, execute and file with the
appropriate authorities, or cause to be prepared, executed
and filed with the appropriate authorities, all such further
certificates, documents and instruments, in the name and on
behalf of the Corporation and under its corporate seal if
necessary, and otherwise, as the officer or officers
executing the same may deem to be necessary or desirable to
carry out and to effectuate the purposes of the foregoing
resolutions.
<PAGE>
FOURTH: That the merger has been adopted, approved, certified,
executed, and acknowledged by the Parent in accordance with
the laws of the State of Nevada, the jurisdiction of the
incorporation of the Parent.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed and this certificate to be executed this 23rd day of October, 1999.
NETGATEWAY, INC. (NEVADA)
By: /s/ Donald M. Corliss, Jr.
--------------------------------
Donald M. Corliss, Jr.
President
ATTEST:
/s/ Hanh Ngo
- -------------------------
Hanh Ngo
Secretary
<PAGE>
EXHIBIT 3.4
NAME: NETGATEWAY, INC.
FILE TYP/NR C 006284-1995 ST NEVADA INC ON APR 13, 1995 FOR PERPETUAL
STATUS: MERGE/DISSOLVED : 11-02-99 NUMBER OF PAGES FILED: 9 PME
TYPE: REGULAR
PURPOSE: ALL LEGAL ACTIVITIES NAME CONSENT: 06-08-98
CAPITAL: $25,000
PAR SHRS: 25,000,000 PAR VAL: $.001 NR NO PAR SHRS: 2,500
RA NBR: 23757
LIST OF OFFICERS FOR 99 - 00 FILED ON 04-29-99 DAB
RA SECRETARY OF STATE STE 3 ACCEPTED 110299
101 N CARSON ST CARSON CITY NV 89701 + 4786
PRES DONALD M. CORLISS, JR. SUITE #500 061595
300 OCEANGATE LONG BEACH CA 90802
SECT HANH NGO SUITE #500 061595
300 OCEANGATE LONG BEACH CA 90802
TRES DAVID BASSETT-PARKINS SUITE #500 061595
300 OCEANGATE LONG BEACH CA 90802
MORE OFFICERS ON LIST
<PAGE>
NAME: NETGATEWAY, INC.
FILE TYP/NR C 006284-1995
11-02-99 MERGE-DISSOLUTION
ARTICLES OF MERGER FILED MERGING THIS CORPORATION INTO NETGATEWAY, INC., A
(DE) CORPORATION NOT QUALIFIED IN NEVADA. NEVADA SECRETARY OF STATE
DESIGNATED AS AGENDA FOR SERVICE OF PROCESS. FORWARDING ADDRESS: ATTN:
GENERAL COUNSEL, NETGATEWAY, INC., 300 OCEANGATE, 5TH FL., LONG BEACH, CA
90802. (3) PGS. DMF
11-02-99 RA RESOLUTION
CORPORATION TRUST COMPANY OF NEVADA
6100 NEIL ROAD #500 RENO NV 89520 DMF
10-29-99 RA REMOVAL
CORPORATION TRUST COMPANY OF NEVAD KFA
ONE EAST FIRST STREET RENO NV 89501 KFA
04-28-99 RA RESOLUTION
STANLEY K. STILWELL
7604 DELAWARE BAY DR. LAS VEGAS NV 89128 SRH
06-08-98 CHANGED NAME FROM
VIDEO CALLING CARD, INC. DMF
06-08-98 COMMENTS
(2) PGS. DMF
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA ARTICLES OF MERGER
NOV 02 1999 OF
No. C6284-95
----------- NETGATEWAY, INC., A NEVADA CORPORATION
/s/ Dean Heller
DEAN HELLER, WITH AND INTO
SECRETARY OF STATE
NETGATEWAY, INC., A DELAWARE CORPORATION
(Pursuant to Section 92A.200 of the Nevada Revised Statutes)
FIRST: The name of the surviving entity is Netgateway, Inc., and the place
of its organization is the jurisdiction of the state of Delaware and
the merger is permitted pursuant to Section 253 of the General
Corporation Law of the State of Delaware. The name and place or
organization of the entity being merged into the surviving entity is
Netgateway, Inc., organized in the jurisdiction of the state of
Nevada.
SECOND: A plan of merger (the "Plan of Merger") has been adopted by each
entity that is a party to this merger.
THIRD: The Plan of Merger was adopted by unanimous consent of the
shareholder of Netgateway, Inc., a Delaware corporation.
FOURTH: The designation, percentage of total vote or number of votes
entitled to be cast and the total number of votes or percentage of
owner's interests cast for and against the Plan of Merger, by each
class of owner's interest of Netgateway, Inc., a Nevada corporation
entitled to vote separately on the Plan of Merger is as follows:
<TABLE>
<CAPTION>
DESIGNATION VOTES ENTITLED TO BE CAST
----------- -------------------------
<S> <C>
Common Stock: 8,225,400
Votes or Percentage of Owner's
Interests For: 57% of the Common Stock voted for
the merger pursuant to a written
consent of the shareholders
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DESIGNATION VOTES ENTITLED TO BE CAST
----------- -------------------------
<S> <C>
Votes or Percentage of Owner's
Against For: N/A because pursuant to a written
consent of the shareholders
</TABLE>
FIFTH: The number of votes or percentage of owner's interests cast for the
Plan of Merger by the owners of each class of interests of
Netgateway, Inc., a Nevada corporation was sufficient for approval
by the owners of that class.
SIXTH: The complete executed Plan of Merger is on file at the place of
business of Netgateway, Inc., a Delaware corporation (the surviving
entity) located at 300 Oceangate, 5th Floor, Long Beach, California
90802 and a copy of the Plan of Merger will be furnished by
Netgateway, Inc., on request and without cost to any owner of any
entity which is a party to this merger.
SEVENTH: All entities party to this merger have complied with laws of their
respective jurisdiction or organization concerning this merger.
EIGHTH: Netgateway, Inc., designates the following address as the address to
which the Nevada Secretary of State is to mail any process served on
him or her against the entity: Netgateway, Inc. 300 Oceangate, 5th
Floor, Long Beach, California 90802 (Attn: General Counsel).
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be affixed and this certificate to be executed this 08th day of October, 1999.
NETGATEWAY, INC.
By: /s/ Donald M. Corliss, Jr.
---------------------------
Donald M. Corliss, Jr.
President
By: /s/ Hanh Ngo
---------------------------
Hanh Ngo
Secretary
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
On October 08, 1999, personally appeared before me,
Donald M. Corliss, Jr. and Hanh Ngo who acknowledged
that they executed the above instrument
/s/ [illegible]
- -----------------------------
(Notary Stamp or Seal)
[seal]
<PAGE>
EXHIBIT 4.2
NETGATEWAY, INC.
COMMON STOCK CUSIP 641111 10 9
PAR VALUE $.001 SEE REVERSE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.001, OF
NETGATEWAY, INC.
transferable on the books of the Corporation by the holder hereto in person
or by duly authorized attorney upon the surrender of this certificate
properly endorsed. This certificate and the shares represented hereby are
issued and shall be held subject to the laws of the State of Delaware and all
provisions of the Certificate of Incorporation, and the Bylaws of the
Corporation all as from time to time amended (copies thereof being on file
with the Secretary of the Corporation) and the holder hereof, accepting this
certificate, expressly assents thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
WITNESS the seal of the Corporation and the facsimile signatures of its
duly authorized officers.
Dated
NETGATEWAY
SEAL
1999
Secretary President Countersigned and Registered
Colonial Stock Transfer Co.
Transfer Agent and Registrar
<PAGE>
EXHIBIT 5.1
BROCK SILVERSTEIN LLC
800 Third Avenue (212) 371-2000
21st Floor Fax (212) 371-5500
New York, New York 10022
November 10, 1999
Netgateway, Inc.
300 Oceangate
5th Floor
Long Beach, California 90802
Gentlemen:
You have requested our opinion in connection with certain matters
relating to the registration statement on Form S-1 (File No. 333-79751) filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), to register the sale of, among other things, up to
3,450,000 shares (the "Shares") of common stock, par value $.001 per share
(the "Common Stock"), of Netgateway, Inc., Delaware corporation (the
"Company"), by the Company, including up to 450,000 shares of Common Stock
issuable solely to cover over-allotments, if any.
In connection herewith, we have examined such records, documents,
statutes, and decisions as we have deemed relevant. In addition, we have
relied upon certificates of officers of the Company and certificates and
telegrams of public officials as to certain matters relating to this opinion
as we have deemed necessary for purposes hereof.
Based upon, and subject to, the foregoing, we are of the opinion, as at
the date hereof, that the Shares are validly authorized and legally issued,
fully paid, and nonassessable.
We are members of the Bar of the State of New York. The opinion
expressed herein is expressly limited to the laws of the State of New York,
the Federal laws of the United States of America, and the General Corporation
Law of the State of Delaware.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement and the reference to our firm in the Registration
Statement under the caption "Legal Opinions." By doing so, we do not admit
that we come within the category of persons whose consent is required by the
Act or the rules and regulation promulgated thereunder.
Very truly yours,
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
AGREEMENT
This Agreement ("Agreement") made this 25th day of February, 1999 (the
"Effective Date") between NETGATEWAY,INC., a Nevada corporation, with offices
located at 300 Oceangate, Suite 500, Long Beach, CA 90802 (hereinafter
"Netgateway") and XOOM.COM INC., a Delaware corporation, with offices located
at 300 Montgomery Street, San Francisco, CA 94104 (hereinafter "XOOM.com.").
Netgateway and XOOM.com may be referred to herein collectively as (the
"Parties") or singularly as (a "Party").
WHEREAS, Netgateway is the provider of a unique, World Wide Web storefront
building and hosting product and service ("StoresOnline"); and
WHEREAS, XOOM.com is in the business of offering products and programs to its
Members through its Web site on the World Wide Web; and
WHEREAS, Netgateway will supply a private-labeled version of its World Wide
Web storefront building and hosting products and services identified on
Exhibit A hereto, (hereinafter the "Program(s)") to XOOM.com and to
Xoom.com's Members; and
WHEREAS, XOOM.com agrees to give Netgateway the exclusive right to provide the
services and/or products as described in Exhibit A from the Effective Date
hereof to its current and future Members as further described herein and
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, for and in consideration of the mutual promises and
provisions contained in this Agreement, the Parties hereto agree as follows:
A. SOLICITATION AND ENROLLMENT
XOOM.com will market the Programs at its sole cost and expense,
through its XOOM.com Web sites, emails, and other means as agreed to by
the Parties. The price and offer for the Programs shall be mutually
agreed upon by the Parties prior to marketing (see Exhibit A).
Netgateway will capture Subscriber information, including Subscriber
name, address, telephone number and email address (for those
Subscribers who agree to enroll in the Paid version of the Program, see
Exhibit A) ("Subscriber Information") and transmit the "Subscriber
Information" to XOOM.com at times mutually agreed. Members enrolling in
a Program will become Subscribers in that Program. Enrollment in the
Paid Program includes the Subscriber's understanding that their credit
card will be billed, absent cancellation, for the subscription fee
agreed upon and that their account will continue to automatically be
billed absent cancellation for a renewal subscription term at the then
current rate for the Program at the time of such renewal.
B. START DATE
Marketing of the Programs will commence on or about April 15, 1999.
1
<PAGE>
C. NETGATEWAY'S RESPONSIBILITIES
Netgateway shall:
1.) Bill and collect subscription fees for Paid Program
subscriptions.
2.) Provide Netgateway's customary StoresOnline.com customer
service that Netgateway provides to other paid subscribers,
including 24/7 help desk support, to Subscribers (online
customer service only shall be provided to Subscribers of the
Free Program).
3.) Use reasonable commercial efforts to work with XOOM.com to
customize existing Programs for XOOM.com Subscribers, as
provided for in Section D.
4.) Pay commissions to XOOM.com as follows:
a.) Commissions to XOOM.com for Paid Program subscriptions
will be U.S. [**REDACTED**] per month for each Paid
Program Subscriber enrolled by XOOM.com for as long as the
Subscriber is active.
b.) No commission shall be payable to XOOM.com for any Full Set
Up Service purchased from Netgateway by XOOM.com
Subscribers (see Exhibit A), provided that XOOM.com will
be entitled to commissions in accordance with 4(a) above
on any monthly subscription fees paid by subscribers who
purchase the Full Set Up Service
c.) In the event that Netgateway's quarterly revenue from fees
paid by Paid Program Subscribers fees exceeds U.S.
[**REDACTED**] Netgateway shall rebate XOOM.com U.S.
[**REDACTED**] per month, per enrolled Paid Program
Subscriber. The rebate shall be effective retroactively
based upon Netgateway revenue received that calendar
quarter, and shall be due no later than 30 days after the
end of each calendar quarter.
d.) Netgateway will pay XOOM.com a [**REDACTED**] commission
on all net revenues received by Netgatway generated from
components of the XOOM.com "Mall" (see Exhibit A). These
"Mall" components include but are not limited to:
- eCommerce advertisers solicited by Netgateway
- Banner advertising, sold by Netgateway, on a pro rata
basis as attributable to the XOOM.com "Mall"
- Click through revenue from eTailer sales (need
definition of eTailer)
- Revenue generated from featured product sales
- Any and all revenue-generating components added after
the signature of this Agreement
5.) Provide XOOM.com with all End-Customer Data (as defined below)
generated by Subscriber sites of both the Paid Program (unless
End-Customer opts out) and the Free Program.
- An End-Customer is defined as an individual making a
purchase from a XOOM.com/Netgateway Subscriber's online
storefront.
- End-Customer Data is defined as, customer name, email
address, credit card number, product purchased during
transaction, and any or
2
<PAGE>
all other data as requested by XOOM.com subject to its
reasonable availability.
- XOOM.com shall be the sole owner of and have exclusive
marketing rights to the End-Customer Data.
- Netgateway shall may use the End-Customer data for its
standard statistical analysis and public reporting
disclosure requirements.
- XOOM.com shall ensure that all necessary and appropriate
prior disclosure is made to both Subscribers and
end-customers regarding the collection and use of
end-customer data by XOOM.com. (See Exhibit A.)
6.) Agree during the term of this Agreement and for two (2)
years after the effective date of its termination not to
knowingly induce XOOM.com Members or Netgateway Subscribers to
terminate their relationships with XOOM.com in favor of a
XOOM.com competitor.
7.) Shall insure that the performance of the Program shall meet or
exceed industry standards, shall remain competitive with
substantially similar services being offered by third parties,
and shall maintain Program at the same or higher level that it
maintains the Program for its other partners, licensees and
customers. Netgateway shall promptly respond to and remedy any
errors or omissions or problems reported by XOOM.com.
D. CUSTOMIZATION/PRIVATE-LABELING
1.) Netgateway will private label the Programs described in
Exhibit A with the XOOM.com name and logo, subject to approval
by XOOM.com, such approval not be unreasonably withheld.
E. MARKETING RIGHTS
XOOM.com holds all rights to the Subscriber Information and
end-customer data for the term of this Agreement and two years
thereafter. In the event of the termination of this Agreement, Netgateway
shall receive co-ownership of Subscriber Information for Subscribers
STILL ACTIVE at the end of a period of two years from the date of
termination of this Agreement.
F. XOOM.COM'S RESPONSIBILITIES
XOOM.com shall:
1.) Actively market the Programs to its Member base by integrating
information to allow Members to enroll in the Programs on the
XOOM.com Web sites, its communities area, e-mail to its
Customers, upsells after purchase of its products and programs
and by other means as may be developed and to be mutually agreed
to by the Parties.
a) This marketing shall include active promotion to enroll
Members as Subscribers in Free Program, to enroll Members as
Subscribers in the Paid Program, upsell Subscribers in the
Free Program to the Paid
3
<PAGE>
Program (see Exhibit A), and offers promoting the Full Set Up
Service (see Exhibit A).
2.) Electronically transmit newly enrolled Subscriber Information to
Netgateway at mutually agreeable times and in file formats agreed
to.
3.) Use best efforts to ensure that XOOM.com's Web site information
contains current Program benefit information as submitted to
XOOM.com by Netgateway.
4.) Use best efforts to work with Netgateway to achieve success for
the Programs marketed.
7.) Expend reasonable management time to improve Subscriber
enrollment rates.
8.) Agree during the term of this Agreement and for two (2) years
after the effective date of its termination, not to knowingly
induce then active Subscribers to enroll in a competing product
or service.
G. REPRESENTATIONS, WARRANTIES AND COVENANTS
1. Netgateway represents, warrants and covenants that (i.) the making of
this Agreement does not violate any law, regulation or agreement to which
it is a Party and that Netgateway has the authority to enter into this
Agreement and to perform its obligations hereunder; (ii.) Netgateway has
the right to grant the rights and licenses contemplated by this Agreement,
without the need for any licenses, releases, consents, approvals or
immunities not yet granted; (iii.) the content contained on the Netgateway
Web Pages which is generated and/or provided by Netgateway will be of
standards equivalent to that on the then current XOOM.com Membership Sites;
(iv.) the content provided by, or approved by, Netgateway to be displayed
on the Netgateway Web Pages (including all trademarks, tradenames and/or
other intellectual property rights) and the reproduction, distribution and
other use thereof as contemplated by this Agreement do not and will not
infringe or misappropriate any patent, copyright, trademark, trade secret,
publicity, privacy or other rights of any third person, and are not and
will not be defamatory or obscene; and (v.) the representations, warranties
and covenants herein shall survive the expiration and/or termination of
this Agreement.
2. XOOM.com represents, warrants and covenants that (i.) the making of this
Agreement does not violate any law, regulation or agreement to which it is
a party and that XOOM.com has the authority to enter into this Agreement
and to perform its obligations hereunder; (ii.) XOOM.com has the sole and
exclusive right to grant the rights and licenses contemplated by this
Agreement, without the need for any licenses, releases, consents, approvals
or immunities not yet granted; (iii.) the content contained on the XOOM.com
Membership Sites which is generated and/or provided by XOOM.com will be of
the same high standards as the content on the current main XOOM.com site
and services; (iv.) the content provided by, or approved by, XOOM.com to be
displayed on the Netgateway Web Pages or otherwise on the XOOM.com
Membership Sites (including all trademarks, trade names and/or other
intellectual property rights) and the reproduction, distribution and other
use thereof as contemplated by this
4
<PAGE>
Agreement do not and will not infringe or misappropriate any patent,
copyright, trademark, trade secret, publicity, privacy or other rights of
any third person, and are not and will not be defamatory or obscene; and
(v.) the representations, warranties and covenants herein shall survive the
expiration and/or termination of this Agreement.
H. CONFIDENTIALITY
1. Non-Disclosure Agreement. The Parties agree and acknowledge that as a
result of negotiating, entering into and performing this Agreement, each
Party has and will have access to certain of the other Party's Confidential
Information (defined below). Confidential Information shall include
Subscriber Information and End-Customer Data. Each Party also understands
and agrees that misuse and/or disclosure of that information could
adversely effect the other Party's business. Accordingly, the Parties agree
that during the term of this Agreement, each Party shall use the other
Party's Confidential Information only for purposes of this Agreement and
only to the extent necessary for such purpose and shall restrict disclosure
of the other Party's Confidential Information to its employees, consultants
or independent contractors with a need to know and shall not disclose the
other Party's Confidential Information to any third party without the prior
written approval of the other Party. Notwithstanding the foregoing, it
shall not be a breach of this Agreement for either Party to disclose
Confidential Information of the other Party if required to do so under law
or in a judicial or other governmental investigation or proceeding,
provided the other Party has been given as timely prior written notice of
such request for disclosure as is possible, giving such Party a reasonable
opportunity to defend such request for disclosure. The recipient of a
demand for disclosure shall cooperate with the Party whose Confidential
Information is being sought as is reasonably necessary.
2. Confidential Information Defined. As used in this Agreement, the term
"Confidential Information" only refers to information marked as
confidential at the time of disclosure, including: (i.) each Party's trade
secrets, business plans, strategies, methods and/or practices and other
information relating to either Party that is not generally known to the
public, including information about either Party's personnel, products,
customers, marketing strategies, services or future business plans.
Confidential Information shall include Subscriber Information and
End-Customer Data. The terms and conditions contained in this Agreement
shall be considered "Confidential Information". Notwithstanding the
foregoing, the term Confidential Information specifically excludes (i.)
information that is now in the public domain or subsequently enters the
public domain by publication or otherwise through no action or fault of the
receiving Party; (ii.) information that the receiving Party receives from
any third party without restriction on disclosure or use known to such
Party; (iii.) information which was lawfully in the receiving Party's
possession prior to the time Netgateway and XOOM.com entered into
discussions regarding this Agreement; and (iv.) information independently
developed by the receiving Party's employees, consultants or agents; and
v.) information that was previously known to the receiving party prior to
receipt from the disclosing Party.
5
<PAGE>
I. EXCLUSIVITY
During the term of this Agreement, Netgateway will be the sole and
exclusive provider of services and products described in Exhibit A to
XOOM.com and its Members. After termination or expiration of this
Agreement, XOOM.com agrees to not itself solicit, nor to assist, nor to
allow solicitation of active Subscribers by any third parties for any
program competitive to the Programs.
J. TERM AND TERMINATION
This Agreement shall remain in effect for a period of one (1) year from
the Effective Date (the "Initial Term"). Thereafter, this Agreement
will automatically renew for additional consecutive one (1) year terms
("Renewal Terms") unless a written notice of intent to terminate is
given to either Party by the other Party ninety (90) days prior to
expiration of the then current term. The term of this Agreement includes
the Initial Term and any Renewal Terms. Sections E, G, H, J, K, L, O and
P shall survive the termination of this Agreement.
Notwithstanding anything else to the contrary in this Agreement, if at
any time during its term either XOOM.com or Netgateway breaches its
obligations or responsibilities under this Agreement, the non-breaching
Party may deliver to the breaching Party written notice of its intent to
terminate this Agreement setting forth the nature of the breach.
Termination will be effective thirty (30) days after acknowledged delivery
of the termination notice to the breaching Party unless the breach is cured
within such thirty (30) day period.
Either party may terminate this Agreement: (1) if the other party files
a petition for bankruptcy, becomes insolvent, or makes an assignment for
the benefit of its creditors, or a receiver is appointed for the other
party or its business; (2) upon the occurrence of a material breach of a
material provision of this Agreement by the other party if such breach is
not remedied within thirty (30) days after written notice is received by
the breaching party identifying the matter constituting the material
breach; (3) by mutual consent of the parties.
In the event of termination, XOOM.com and Netgateway will continue to
offer those Subscribers enrolled prior to the effective date of termination
continuing access to benefits in any Program or any mutually developed
program in which they are enrolled. Netgateway will continue billing
Subscribers for Program memberships after termination, absent cancellation
by the Subscriber or Netgateway, and XOOM.com will continue to receive
commissions on Program subscriptions billed, as provided for in this
Agreement in item (C)(4.)(a.), for a period of two (2) years after the
termination or expiration of this Agreement.
K. INDEMNIFICATION
1. Netgateway's Indemnification. Netgateway hereby agrees to indemnify
XOOM.com, its officers, directors, employees and servants against any claim
and
6
<PAGE>
hold all of the foregoing harmless from any liabilities, penalties,
damages, costs, reasonable attorneys' fees or other expenses of any
nature whatsoever excluding consequential damages, resulting from
(i.) claims with respect to Netgateway Programs marketed by XOOM.com,
(ii.) any claim that any content of Netgateway's Web pages provided
by Netgateway, for use on the XOOM.com Membership Sites (including
without limitation logos, domain name and/or trademark) infringes any
third party proprietary rights, or otherwise subjects XOOM.com to
liability to any third party with respect to the copy contained
therein and/or (iii.) any claim from its or its agents performance or
failure to perform its obligations under the terms and conditions of
this Agreement.
2. XOOM.com's Indemnification. XOOM.com shall indemnify Netgateway, its
officers, directors, employees and servants against any claim and hold
all of the foregoing harmless from any liabilities, penalties,
damages, costs, reasonable attorney's fees or other expenses of any
nature whatsoever excluding consequential damages resulting from (i)
any claim that any aspect of the content of XOOM.com's Membership
Sites, including the Netgateway Web pages, which was provided by
XOOM.com, in conjunction with the XOOM.com Membership Sites infringes
any U.S. patent, copyright, license, trade secret (including without
limitation logos, domain name and/or trademark) or infringes any third
party proprietary rights, or otherwise subjects Netgateway to
liability to any third party and/or (iii.) any claim resulting from its
or its agents performance or failure to perform its obligations under the
terms and conditions of this Agreement (iv) any claims arising out of
the Subscriber Information or End Customer Data by or through
XOOM.com (v) any claim arising out of the XOOM.com Web site or
business operations (vi) any claim arising out of misrepresentation of
the Netgateway products or services by XOOM.com.
3. Within five (5) business days after receipt by a Party of a notice of
any demand, claim or circumstances which, with the lapse of time or
otherwise, would or might give rise to a claim or the commencement (or
threatened commencement) of any action, proceeding or investigation
(an "Asserted Liability") that may result in any claim for which a
Party is entitled to indemnification under this Agreement (a "Claim"),
the Party entitled to indemnification (the "Indemnified Party"), shall
promptly give notice thereof (the "Claims Notice") to the Party
obligated to provide indemnification pursuant to this Agreement (the
"Indemnifying Party"); provided however, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under Section K. (1) or (2)
hereof, except to the extent that the Indemnifying Party is actually
prejudiced by such failure to give notice. The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall
indicate the amount (estimated, if necessary and to the extent
feasible) of the Claim that has been or may be suffered by the
Indemnified Party.
(i.) The Indemnifying Party may elect to compromise or defend, at
its own expense and by its own counsel, any Asserted Liability.
If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within thirty (30) days (or sooner,
if the nature of the
7
<PAGE>
Asserted Liability so requires) notify the Indemnified Party of
its intent to do so, and the Indemnified Party shall reasonably
cooperate, at the sole expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted Liability.
(ii.) If the Indemnifying Party elects not to compromise or defend
the Asserted Liability, fails to notify the Indemnified Party
of its election as herein provided or contests its obligations
to indemnify under this Agreement, the Indemnified Party may
itself pay, compromise or defend such Asserted Liability and
notify in writing the Indemnifying Party of its election to do
so, at the expense of the Indemnifying Party (if the
Indemnifying party is found obligated to indemnify the
Indemnified Party with respect to the Claim).
(iii.) Subject to the limitations contained in Subparagraph 3(ii)
below (on the obligations of the Indemnifying Party in respect to
proposed settlements), the Indemnified Party shall have the
right to employ its own counsel with respect to any Asserted
Liability, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (1) the employment
of such counsel shall have been authorized and agreed to in
writing by the Indemnifying Party in connection with the defense
of such action, or (2) such Indemnifying Party shall not have,
as provided above, promptly employed counsel to take charge of
the defense of such action, or (3) the Indemnified Party shall
have reasonably concluded based on an opinion of its counsel
and agreed to by counsel for the Indemnifying Party, if any,
that there may be one or more legal defenses available to it
which are different from or additional to those available to such
Indemnifying Party, in any of which events such reasonable fees
and expenses shall be borne by the Indemnifying Party and
the Indemnifying Party shall not have the right to direct the
defense of such action on behalf of the Indemnified Party in
respect of such different or additional defenses.
(iv.) If the Indemnifying Party chooses to defend any Claim, the
Indemnified Party shall make available to the Indemnifying
Party any books, records or other documents within its control
that are reasonably necessary or appropriate for such defense.
If the Indemnifying Party elects not to assume the defense of a
Claim, it will not be obligated to pay the fees and expenses of
more than one counsel for all Indemnified Parties with respect to
such Claim, unless in the reasonable judgment of an Indemnified
Party, and in the opinion of such Indemnified Party's counsel and
agreed to by counsel for the Indemnifying Party, if any, a
conflict of interest may exist between such Indemnified Party and
any other of such Indemnified Parties with respect to such Claim,
in which event the Indemnifying Party shall be obligated to pay
the fees and expenses of such additional counsel or counsels.
8
<PAGE>
(v.) Notwithstanding the provisions of Subparagraph 3(iv.) above,
neither the Indemnifying Party nor the Indemnified Party may
settle or compromise any Claim for which indemnification has
been sought and is available hereunder, over the objection of
the other; provided, however, that consent to settlement or
compromise shall not be unreasonably withheld or delayed. If,
however, the Indemnified Party refuses to consent to a bona
fide offer of settlement which the Indemnifying Party wishes to
accept, the Indemnified Party may continue to pursue such
matter, free of any participation by the Indemnifying Party, at
the sole expense of the Indemnified Party. In such event, the
obligation of the Indemnifying Party to the Indemnified Party
shall be equal to the lesser of (i.) the amount of the offer of
settlement which the Indemnified Party refused to accept plus
the costs and expenses of the Indemnified Party prior to the
date the Indemnifying Party notified the Indemnified Party of
the offer of settlement, or (ii.) the actual out-of-pocket
amount the Indemnified Party is obligated to pay as a result of
the Indemnified Party's continuing to pursue such matter. No
Party will be required to consent to entry of any judgment or
enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Party of a release from all liability in respect to the
Claim.
4. Where a claim for indemnification is made by Netgateway pursuant to
Section K.(2), or where one is reasonably likely to occur in
XOOM.com's opinion, XOOM.com may with prior written notice to
Netgateway, (i.) replace some portion of the offending content with
non-infringing and reasonably comparable non-offending content, (ii.)
obtain a license to use or request Netgateway to promptly obtain a
license to use any infringing property, and/or (iii.) if the foregoing
options are not reasonably available in XOOM.com's reasonable opinion,
terminate this Agreement upon ninety (90) days prior written notice to
Netgateway.
5. Where a claim for indemnification is made by XOOM.com pursuant to
Section K.(1), or where one is reasonably likely to occur in
Netgateway's opinion, Netgateway may with prior written notice to
XOOM.com, (i.) replace some portion of the offending content with
non-infringing and reasonably comparable non-offending content, (ii.)
obtain a license to use or request XOOM.com to promptly obtain a
license to use any infringing property, and/or (iii.) if the foregoing
options are not reasonably available in Netgateway's reasonable
opinion, terminate the Agreement upon ninety (90) days prior written
notice to XOOM.com.
L. INTELLECTUAL PROPERTY
XOOM.com acknowledges Netgateway's proprietary interest in and
ownership of all intellectual property associated with Netgateway's
Programs and Services, including, but not limited to copy, copyrights,
tradenames, servicemarks, brands and trademarks hereinafter
("Intellectual Property").
9
<PAGE>
Neither Party shall use any of the other Party's copy, copyrighted
materials, tradenames, servicemarks, brands or trademarks without
the prior written consent of the other Party. It is expressly
understood by each Party that Intellectual Property is proprietary
to the owning Party and that nothing in this Agreement constitutes
the grant of a general license for one Party to use the Intellectual
Property of the other Party.
Upon termination of this Agreement, any and all rights or privileges
of either Party to use the other Party's Intellectual Property shall
expire, and each Party shall discontinue the use of the other's
Intellectual Property in connection with any business conducted unless
otherwise provided for in writing and signed by authorized
representatives of both Parties.
M. TRANSFERABILITY
This Agreement may be assigned by either Party, in whole or in part with
notice and the written consent of the other Party, to (i.) an Affiliate
which is defined as a subsidiary or related corporate entity whose voting
stock is controlled by a Party hereto, or (ii.) a third party which
acquires all or substantially all of such Party's assets and has the
capability to perform all of the obligations of the assigning Party
under the terms and conditions of this Agreement. A permitted assignment
by a Party hereunder will not relieve such Party from obligations under
the terms of this Agreement.
N. AUDIT OF RECORDS
Netgateway agrees to maintain adequate books and records relating to
sales of the Programs. Such books and records shall be available at their
place of business for inspection by XOOM.com or its representative, for
the purpose of determining whether the correct amounts have been paid in
accordance with the terms of this Agreement. In the event that XOOM.com
or its representatives shall examine the records, documents, and
materials in the possession or under the control of Netgateway with
respect to the subject matter, such examination should be conducted in
such manner as to not unduly interfere with the business of Netgateway
and such examination should be made after reasonable prior written notice
and during business hours. XOOM.com and its representatives shall not
disclose to any other person, firm or corporation any information
acquired as a result of any such examination, provided, however, that
nothing herein contained shall be construed to prevent XOOM.com and/or
its duly authorized representatives from testifying in any court of
competent jurisdiction with respect to the information obtained as a
result of such examination, in any action instituted to enforce the
rights of either Party under the terms of this Agreement. XOOM.com shall
have the right to have such books and records audited by its
independent certified public accountant, upon thirty (30) days' advance
notice, but no such audit may be conducted more than once in any [twelve
(12) month] period. In the event that such an examination finds an
underpayment/overpayment in excess of the greater of [5%] of the total
amount or [$25,000] the Parties shall attempt to resolve the discrepancy
within a [thirty (30)]
10
<PAGE>
day period following the delivery of a written report by the XOOM.com's
auditors setting forth the alleged discrepancy, and, if the Parties are
unable to resolve the discrepancy, the dispute shall be resolved by an
independent third party certified public accountant selected by the
Parties' respective certified public accountants, and the decision of
such third party shall be final and binding upon the Parties. Timely
adjustment shall be made to correct for any underpayments/overpayments
disclosed by such examination. If the result of the foregoing procedure
finds an adjustment of more than $25,000 during a twelve (12) month
period due to XOOM.com, Netgateway shall pay the reasonable costs of
such audit. All amounts finally determined due to XOOM.com, including
payment of auditing fees hereunder, shall be payable to XOOM.com and are
due within five (5) business days.
O. LIMITATION OF LIABILITY
1. XOOM.com shall not be liable to Netgateway for any damage arising from
or related to technical defects in or failure of the XOOM.com Membership
Sites, or for any indirect, consequential or punitive damages arising out
of or in connection with this Agreement or the transfer or use of the
XOOM.com Membership Sites other than for damages arising from XOOM.com's
gross negligence or willful misconduct; however, XOOM.com shall continue
to remain responsible to indemnify Netgateway from third party claims
arising in connection with the above and for Claims pursuant to the
provisions of Section K.
2. Netgateway shall not be liable to XOOM.com for any damage arising from or
related to defects in or failure of any Program, or for any indirect,
consequential or punitive damages arising out of or in connection with
this Agreement, including the offering of Programs, or the development
and use of the Netgateway Web Pages, other than for damages arising from
Netgateway's gross negligence or willful misconduct; however, Netgateway
shall continue to remain responsible to indemnify XOOM.com from third
party claims arising in connection with the above and for Claims pursuant
to the provisions of Section K.
P. MISCELLANEOUS
1. Force Majeure. Neither Party shall be liable for any damages or have the
right to terminate the Agreement for any delay or default in performing
this Agreement if such delay or default is caused by conditions beyond
its control, including, but not limited to, acts of God, government
restrictions, wars, insurrections, strikes, floods or work stoppages;
provided however, that if such delay or default shall exceed thirty (30)
days, then the Party not delaying or defaulting may, so long as the
delay or default continues beyond such thirty (30) day period, terminate
this Agreement. All amounts due one Party to the other shall be
reconciled and remitted, determined as of the effective termination
date, within ten (10) business days from the end of this thirty (30) day
period. The Party affected by the conditions beyond its control, shall
keep the other Party fully informed on an ongoing basis concerning the
matters causing the delay or default, and the prospects
11
<PAGE>
of their ending. The foregoing shall not apply to any failure to comply
with any legal requirements applicable under the terms of this Agreement.
2. Entire Agreement. This Agreement, including Exhibits A and B referred to
herein, contains the entire agreement of the Parties and shall not be
varied, revised, modified, amended or supplemented, except in writing of
subsequent or even date, executed by each of the Parties.
3. Section Headings. Section Headings are for convenience only and are not
a part of this Agreement.
4. Enforceability. If any part of this Agreement shall be held to be
unenforceable, the remainder of this Agreement will nevertheless remain
in full force and effect.
5. Counterparts. This Agreement may be executed in one or more counterparts
which, taken together, shall constitute one and the same agreement, and
either Party may execute this Agreement by signing such counterpart.
6. Public Announcement
No press release, public announcement, confirmation or other information
regarding this Agreement or the contents hereof or thereof shall be made
by any Party without the prior written consent of the other Party, which
consent shall not by unreasonably withheld. It is agreed and understood
that the Parties shall work together to prepare any such press release
or public announcement. Both parties agree to publicly announce the
general terms of the relationship between the Parties and the launch of
the Program and Services contemplated herein. The foregoing
notwithstanding, if a Party is required pursuant to applicable securities
laws to make such an announcement or press release, the Party shall
furnish the other Party with the text of such public announcement or
press release sufficiently in advance of such public announcement or
press release as to afford the receiving Party a reasonable opportunity
to review such public announcement or press release, and to the extent
consistent with its legal disclosure obligations, modify such public
announcement or press release as reasonably requested by the other Party.
No Agency. Nothing in this Agreement shall be construed to constitute or
appoint either Party as the agent or representative of the other Party
for any purpose whatsoever, or to grant to either Party any rights or
authority to assume or create any obligation or responsibility, express
or implied, for or on behalf of or in the name of the other, or to bind
the other in any way or manner whatsoever. Nothing herein shall be deemed
to create a joint venture or partnership between the Parties.
Q. NOTICES
All notices under this Agreement shall be sent i.) by the U.S. mail with
proper postage affixed, or ii.) by a nationally recognized overnight mail
service, or iii.)
12
<PAGE>
by facsimile acknowledged as transmitted followed by an original copy
forwarded by overnight mail to the Parties at the addresses below:
Netgateway, Inc.: 300 Oceangate, Suite 500
Long Beach, CA 90802
ATTN: Donald M. Corliss, Jr.
XOOM.com, Inc.: 300 Montgomery Street
Third Floor
San Francisco, CA 94104
ATTN: Laurent Massa, CEO
R. GOVERNING LAW
This Agreement shall be subject to, governed by and construed under the
laws of the State of California without giving effect to the principles of
conflict of laws.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
NETGATEWAY, INC. XOOM.COM, INC.
BY: /s/ DONALD M. CORLISS, JR. BY: /s/ JANINE POPICK
------------------------------- -----------------------------
PRINT NAME: DONALD M. CORLISS, JR. PRINT NAME: JANINE POPICK
----------------------- ---------------------
ITS: PRESIDENT ITS: VP-EC
------------------------------ ----------------------------
DATE: 3/8/99 DATE: 3/4/99
----------------------------- ---------------------------
13
<PAGE>
EXHIBIT A
TO
AGREEMENT
BETWEEN
XOOM.COM, INC.
AND
NETGATEWAY
PROGRAM TO BE PRIVATE LABELED FOR XOOM.COM:
The StoresOnline Internet storefront building and hosting product and
service. This product and service provides online storefront creation and
maintenance, full eCommerce features, and 24/7 help desk support, plus any
features and/or benefits that shall be added to the StoresOnline
product/service during the term of this Agreement.
1) A modified version of the Program shall be created for XOOM.com,
the "Free Program":
a) Made available for free to XOOM.com Members.
b) Will accommodate a maximum of three (3) Subscriber products.
c) Will include online (Internet) based customer service and
support only.
d) Shall include all necessary and appropriate prior disclosure
regarding the collection and use of end-customer data in the
Terms of Service and in the end-customer point of sale.
- There will NOT be an opportunity, for either the
Subscriber or the end-customer, to decline this collection
and use of end-customer data.
2) A full version of the Program shall be created for XOOM.com, the
"Paid Program":
a) To be offered for a U.S. [**REDACTED**] monthly subscription
fee.
b) Shall include all features, benefits, and options currently
available and any added in the future in the StoresOnline
service.
c) Will include full customer service and support.
d) Shall include all necessary and appropriate prior disclosure
regarding the collection and use of end-customer data in the
Subscriber Terms of Service and in the end-customer point of
sale.
- There will be an opportunity for the end-customer to
decline collection and use of end-customer data in the point
of sale area only.
3) Full Set Up Service
Netgateway offers a service whereby it will design and construct
Netgateway Subscriber World Wide Web storefronts for a fee of U.S.
[**REDACTED**] This is a service above and separate from the
modified version of the Program and the full version of the Program.
4) Storefront "Mall" (actual name to be determined by XOOM.com)
a) Netgateway will create, manage and host a XOOM.com private
labeled version of its standard online "mall".
14
<PAGE>
b) The "mall" shall feature XOOM.com Subscriber Web storefronts
as well as other parties' Subscriber Web storefronts from its
storefront "Mall Network."
c) XOOM.com's Subscriber Web storefronts shall be included in the
"Mall Network" and may appear in other parties' private labeled
or cobranded "malls."
d) The "mall" will include an appropriate URL (as agreed upon by
both Parties).
e) The "mall" will feature advertising of various third party
advertisers and sponsors recruited by Netgateway.
f) The "mall" shall include an appropriate search engine, commerce
functionality, banner and other appropriate advertising space,
and such other features as the Parties mutually agree.
g) Netgateway has the right to display its logos and appropriate
"Powered By" language on the "mall."
h) Netgateway may, at its discretion, choose to include or not
include XOOM.com's NONPAYING Subscriber Web storefronts in the
XOOM.com branded "mall" and/or in the "Mall Network" made
available to third party "malls" by Netgateway.
15
<PAGE>
EXHIBIT B
TO
AGREEMENT
BETWEEN
XOOM.COM, INC.
AND
NETGATEWAY
CERTAIN DEFINITIONS
- - The XOOM.com Membership Sites shall mean all Web sites and sell pages
hosted by XOOM.com.
- - XOOM.com Web site(s) shall mean all XOOM.com Membership Sites
- - The Netgateway Web Pages shall be the specific Web site and "sell" pages
(located within the XOOM.com Membership Sites and other areas) hosted by
XOOM.com and featuring Netgateway Programs.
- - Members shall mean XOOM.com registered Members including, but not limited
those individuals making visits to XOOM.com Web sites and those individuals
who have previously purchased products and programs on the XOOM.com Web site.
- - Subscribers shall mean individuals who subscribe or shall subscribe to any
of the Programs as promoted by XOOM.com.
16
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
NETGATEWAY
ELECTRONIC COMMERCE SERVICES AGREEMENT
THIS ELECTRONIC COMMERCE SERVICES AGREEMENT (this "Agreement") is made
effective as of the Acceptance Date set forth in the initial eCommerce
Services Order Form (March 24, 1999) accepted by Netgateway, a Nevada
corporation ("Netgateway") and the subscriber identified below ("Subscriber").
PARTIES:
SUBSCRIBER NAME: CB RICHARD ELLIS
ADDRESS: 5000 BIRCH STREET
SUITE 9000
NEWPORT BEACH, CA 92660
PHONE: (949)955-2015
FAX: (949)757-4392
NETGATEWAY, INC.
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562)308-0010
Fax: (562)308-0021
1. ELECTRONIC COMMERCE SERVICES.
1.1 eCOMMERCE SERVICES. Subject to the terms and conditions of this
Agreement, during the term of this Agreement, Netgateway will, through the
Netgateway Internet Commerce Center-TM- ("Netgateway ICC") provide to
Subscriber the services described in the eCommerce Services Order Form(s)
(the "eCOMMERCE SERVICES ORDER FORM(S)") accepted by Netgateway, or
substantially similar services if such substantially similar services would
provide Subscriber with substantially similar benefits (the "eCommerce
Services"). All such eCommerce Services Order Forms will be incorporated
herein by this reference as of the Acceptance Date set forth in each such form.
Netgateway and Subscriber have mutually agreed or will mutually agree upon
the detailed final specifications (the "SPECIFICATIONS") for the eCommerce
Services and the development timeline therefor, all of which are or will be
set forth on the attached initial eCommerce Services Order Form, marked
Exhibit "A", and by this reference made a part hereof.
1.2 AVAILABILITY. ECommerce Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7)
days a week. Netgateway reserves the right upon reasonable notice to
Subscriber to limit or curtail holiday or weekend availability when necessary
for system upgrades, adjustments, maintenance, or other operational
considerations.
1.3 ENHANCEMENTS. General enhancements to existing eCommerce Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at no additional cost. Any
new features or services that may be developed by Netgateway during the term
of this Agreement that Netgateway intends to offer to subscribers on a
limited or optional basis may, at Netgateway' option, and subject to
Subscribers' acceptance, be made available to Subscriber at Netgateway's
then-current prices for such new features or services. Enhancements to existing
eCommerce Services requested by Subscriber that benefit only subscriber at
the time such enhancements are put into service shall be billed to Subscriber
at Netgateway's standard rates for programming. All enhancements to the
eCommerce Services, and any new features or services introduced by
Netgateway, shall remain the exclusive proprietary property of Netgateway.
1.4 TRAINING. At no cost to subscriber, Netgateway shall provide such
onsite training and other assistance, as Netgateway deems necessary to assure
that Subscriber's personnel are able to make effective use of the eCommerce
Services. On-site training shall take place at such times and places as are
mutually agreeable to the parties hereto.
1.5 SUBSCRIBER DATA.
(a) SUBSCRIBER DATA. Subscriber will timely supply Netgateway, in a form
acceptable to Netgateway, with all data necessary for Netgateway to perform
the ongoing services to be provided hereunder. It is the sole responsibility
of Subscriber to insure the completeness and accuracy of such data.
(b) CONFIDENTIALITY. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber are confidential and
shall take reasonable steps to protect the confidentiality of such records,
data, files and other materials. Netgateway will provide reasonable security
safeguards to limit access to Subscriber's files and records to Subscriber
and other authorized parties.
(c) PROTECTION OF SUBSCRIBER FILES. Netgateway will take reasonable steps
to protect against the loss or alteration of Subscriber's files, records and
data retained by Netgateway, but Subscriber recognizes that events beyond the
control of Netgateway may cause such loss or alteration. Netgateway will
maintain backup file(s) containing all the data, files and records related to
Subscriber. Subscriber's file(s), records and data shall, at no cost to
Subscriber, be released to Subscriber on an occurrence that renders
Netgateway unable to perform hereunder, or upon the termination of this
Agreement as provided herein.
(d) OWNERSHIP OF DATA. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber and its customers are
the exclusive property of the Subscriber.
2. FEES AND BILLING.
2.1 FEES. Subscriber will pay all fees and amounts in accordance with the
eCommerce Service Provider Forms.
2.2 BILLING COMMENCEMENT. Billing for eCommerce Services indicated in the
eCommerce Services Order Forms (including the eCommerce Rate, Fee Per Hit,
Banner Advertising and Click Through Revenue), other than the Initial
Development Fee, shall commence on the "OPERATIONAL DATE" indicated in the
eCommerce Services Order Forms. The Initial Development Fee will be due and
payable upon the full execution of this Agreement. In the event that
Subscriber orders other eCommerce Services in addition to those listed in the
initial eCommerce Services Order Form, billing for such services shall
commence on the date Netgateway first provides such additional eCommerce
Services to Subscriber or as otherwise agreed to by Subscriber and Netgateway
in the applicable eCommerce Services Order Form.
2.3 BILLING AND PAYMENT TERMS. The billing and payment terms are set forth
on the attached Exhibit "B", which by this reference is made a part hereof.
2.4 TAXES, UTILITIES AND EXCLUSIONS. All charges shall be exclusive of any
federal, state or local sales, use, excise, AD VALOREM or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of
eCommerce Services hereunder. Any such taxes, which may be applicable will be
paid by Subscriber or by Netgateway for Subscriber's account, in which case
Subscriber shall reimburse Netgateway for amounts so paid. Netgateway shall
provide burstible at 1 megabit per second capacity bandwith for Subscriber's
website at no additional charge. Netgateway is not responsible for providing
connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 COMPLIANCE WITH LAW AND RULES AND REGULATIONS. Subscriber agrees that
Subscriber will comply at all times with all applicable laws and regulations
and Netgateway's general rules and regulations relating to its provision of
eCommerce Services, currently included herein as Section 10, which may be
updated and provided by Netgateway to Subscriber from time to time ("RULES
AND REGULATIONS"). Subscriber acknowledges that Netgateway exercises no
control whatsoever over the content contained in or passing through the
Subscriber's web site or mall ("ECOMMERCE CENTERS"), and that it is the sole
responsibility of Subscriber to ensure that the information it transmits and
receives complies with all applicable laws and regulations.
3.2 ACCESS AND SECURITY. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the eCommerce
Services), and third party claims that may result from its use of, or access
to, the Netgateway Internet Commerce Center-TM-, including, but not limited
to, any unauthorized use or any access devices provided by Netgateway
hereunder.
3.3 NO COMPETITIVE SERVICES. Subscriber shall not use any eCommerce
services that provide catalogue functions or content management combined with
transaction support, (credit card or business to business credits and
debits), during the term of this Agreement.
3.4 INSURANCE.
(a) MINIMUM LEVELS. Subscriber will keep in full force and effect during
the term of this Agreement: (i) comprehensive general liability insurance in
an amount not less than $5 million per occurrence for bodily injury and
property damage; (ii) employer's liability insurance in an amount not less
than $1 million per occurrence; and (iii) workers' compensation insurance in
an amount not less than that required by applicable law. Subscriber also
agrees that it will be solely responsible for ensuring that its agents
(including contractors and subcontractors) maintain, other insurance at
levels no less than those required by applicable law and customary in
Subscriber's industries.
(b) CERTIFICATES OF INSURANCE. Prior to the Operational Date, Subscriber
will furnish Netgateway with certificates of insurance which evidence the
minimum levels of insurance set forth above, and will notify Netgateway in
writing in the event that any such insurance policies are cancelled.
(c) NAMING NETGATEWAY AS AN ADDITIONAL INSURED. Subscriber agrees that
prior to the Operational Date, Subscriber will cause its insurance
provider(s) to name Netgateway as an additional insured and notify Netgateway
in writing of the effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 CONFIDENTIAL INFORMATION. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology, and products, including
the terms and conditions of this Agreement ("CONFIDENTIAL INFORMATION").
Confidential Information will include, but not be limited to, each party's
propriety software and Customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third
party
Revised - NetGateway (1 year) 032399 Page 1
NETGATEWAY CONFIDENTIAL AND PROPRIETARY (rev 2/99)
<PAGE>
(except as required by law or to that party's attorneys, accountants and
other advisors as reasonably necessary), any of the other party's
Confidential Information and will take reasonable precautions to protect the
confidentiality of such information.
4.2 EXCEPTIONS. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party;
(ii) becomes known (independently of disclosure by the disclosing party) to
the receiving party directly or indirectly from a source other than one
having an obligation of confidentiality to the disclosing party; (iii)
becomes publicly known or otherwise ceases to be secret or confidential,
except through a breach of this Agreement by the receiving party; or (iv) is
independently developed by the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 WARRANTIES BY SUBSCRIBER.
(a) SUBSCRIBER'S BUSINESS. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data, and
information used by Subscriber in connection with this Agreement as well as
Subscriber's and its permitted customers' and users' use of the eCommerce
Services (collectively, "SUBSCRIBER'S BUSINESS") does not as of the
Operational Date, and will not during the term of this Agreement, operate in
any manner that would violate any applicable law or regulation.
(ii) Subscriber owns or has the right to use all material
contained in the Subscriber's web site, including all text, graphics, sound,
video, programming, scripts, and applets; and
(iii) The use, reproduction, distribution, and transmission of
the web site, or any information or materials contained in it does not (A)
infringe or misappropriate any copyright, patent, trademark, trade secret, or
any other proprietary rights of a third party; or (B) constitute false
advertising, unfair competition, defamation, an invasion of privacy, or
violate a right of publicity.
(b) RULES AND REGULATIONS. Subscriber has read the Rules and
Regulations (Section 10 below) and represents and warrants that Subscriber
and Subscriber's Business are currently in full compliance with the Rules and
Regulations, and will remain so at all times during the term of this
Agreement.
(c) BREACH OF WARRANTIES. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any
other remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent
any harm to Netgateway or its business.
5.2 WARRANTIES AND DISCLAIMERS BY NETGATEWAY.
(a) NO OTHER WARRANTY. THE ECOMMERCE SERVICES ARE PROVIDED ON AN "AS
IS" BASIS, AND SUBSCRIBER'S USE OF THE ECOMMERCE SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS
AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE ECOMMERCE SERVICES WILL BE
UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE.
(b) DISCLAIMER OF ACTIONS CAUSED BY AND/OR UNDER THE CONTROL OF THIRD
PARTIES. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTERS AND OTHER PORTIONS OF THE INTERNET.
SUCH FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES
PROVIDED OR CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS
CAUSED BY THESE THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S
SUBSCRIBERS' CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE
IMPAIRED OR DISRUPTED. ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE
EFFORTS TO TAKE ACTIONS IT DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS,
NETGATEWAY CANNOT GUARANTEE THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY
DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 EXCLUSIONS. IN NO EVENT WILL NETGATEWAY BE LIABLE TO SUBSCRIBER,
ANY REPRESENTATIVE, OR ANY THIRD PARTY FOR ANY CLAIMS ARISING OUT OF OR
RELATED TO THIS AGREEMENT, SUBSCRIBER'S BUSINESS OR OTHERWISE, AND ANY LOST
REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR
SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF
DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR SUBSCRIBER'S BUSINESS,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.2 LIMITATIONS. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND
AGENTS SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS
OR DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS
OF SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES,
STORMS, STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES
OVER WHICH NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS
AGAINST WHOM LIABILITY IS SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR
DAMAGE, DIRECT OR INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS,
ERRORS OF FACTS, OMISSIONS, OR ERRORS IN THE TRANSMISSION OR DELIVERY OF
ECOMMERCE SERVICES, OR ANY DATA PROVIDED AS A PART OF THE ECOMMERCE SERVICES
PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY THE GROSS
NEGLIGENCE OR WILLFULL MISCONDUCT OF NETGATEWAY. IN ADDITION, IN NO EVENT
SHALL NETGATEWAY BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR SPECIAL,
INDIRECT, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES WHICH SUBSCRIBER OR
SUCH THIRD PARTY MAY INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR
RELYING ON THIS AGREEMENT OR UTILIZING THE NETGATEWAY ECOMMERCE SERVICES,
REGARDLESS OF WHETHER NETGATEWAY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN PART, BY THE
NEGLIGENCE OF NETGATEWAY.
6.3 MAXIMUM LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, NETGATEWAY'S MAXIMUM AGGREGATE LIABILITY TO SUBSCRIBER RELATED TO
OR IN CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID
BY SUBSCRIBER TO NETGATEWAY HEREUNDER FOR THE PERIOD CONSISTING OF THE PRIOR
[**REDACTED**] CALENDAR [**REDACTED**]
6.4 TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS EMPLOYEES, SUCCESSORS
OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF,
SHALL BE COMMENCED WITHIN [**REDACTED**] OF THE FIRST OCCURRENCE GIVING RISE
TO SUCH CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR
OTHERWISE AFFECT THE LIMITATION OF NETGATEWAY'S LIABILITY SET FORTH IN
SECTION 6 OR ELSEWHERE IN THIS AGREEMENT.
6.5 SUBSCRIBER'S INSURANCE. Subscriber agrees that it will not pursue
any claims against Netgateway for any liability Netgateway may have under or
relating to this Agreement until Subscriber first makes claims against
Subscriber's insurance provider(s) and such insurance provider(s) finally
resolve(s) such claims, provided, however, that this provision shall not
apply to the extent that conflicts with Subscriber's current insurance.
6.6 BASIS OF THE BARGAIN; FAILURE OF ESSENTIAL PURPOSE. Subscriber
acknowledges that Netgateway has set its prices and entered into this
Agreement in reliance upon the limitations of liability and the disclaimers
of warranties and damages set forth herein, and that the same form an
essential basis of the bargain between the parties. The parties agree that
the limitations and exclusions of liability and disclaimers specified in this
Agreement will survive and apply even if found to have failed of their
essential purpose.
7. INDEMNIFICATION.
7.1 NETGATEWAY'S INDEMNIFICATION OF SUBSCRIBER. Netgateway will
indemnify, defend and hold Subscriber harmless from and against any and all
costs, liabilities, losses, and expenses (including, but not limited to,
reasonable attorneys' fees) (collectively, "LOSSES") resulting from any
claim, suit, action, or proceeding (each, an "ACTION") brought against
Subscriber alleging the infringement of any third party registered U.S.
copyright or issued U.S. patent resulting from the provision of eCommerce
Services pursuant to this Agreement (but excluding any infringement
contributorily caused by Subscriber's Business).
7.2 SUBSCRIBER'S INDEMNIFICATION OF NETGATEWAY. Subscriber will
indemnify, defend and hold Netgateway, its affiliates and customers harmless
from and against any and all Losses resulting from or arising out of
Subscriber's breach of any provision of this Agreement or any Action brought
against Netgateway, its directors, employees, affiliates or Subscribers
alleging with respect to the Subscriber's Business: (a) infringement or
misappropriation of any intellectual property rights; (b) defamation, libel,
slander, obscenity, pornography, or violation of the rights of privacy or
publicity; (c) spamming, or any other offensive, harassing or illegal conduct
or violation of the Rules and Regulations; or, (d) any violation of any other
applicable law or regulation, provided, however, that, Subscriber's
indemnification shall not extend to acts by third parties, so long as such
acts are not the result of or allowed by the act or omission of Subscriber.
7.3 NOTICE. Each party will provide the other party, prompt written
notice of the existence of any such event of which it becomes aware, and an
opportunity to participate in the defense thereof.
8. DISPUTE RESOLUTION.
8.1 PROCEDURES. It is the intent of the parties that all disputes
arising under this Agreement be resolved expeditiously, amicably, and at the
level within each party's organization that is most knowledgeable about the
disputed issue. The parties understand and agree that the procedures
outlined in this Paragraph 8 are not intended to supplant the routine
handling of inquiries and complaints through informal contact with customer
service representatives or other designated personnel of the parties.
Accordingly, for purposes of the procedures set forth in this paragraph, a
"dispute" is a disagreement that the parties have been unable to resolve by
the normal and routine channels ordinarily used for such matters. Before any
dispute arising under this Agreement, other than as provided in paragraph 8.5
below, may be submitted to arbitration, the parties shall first follow the
informal and escalating procedures set forth below.
(a) The complaining party's representative will notify the other party's
representative in writing of the dispute, and the non-complaining party will
exercise good faith efforts to resolve the matter as expeditiously as
possible.
(b) In the event that such matter remains unresolved thirty (30) days
after the delivery of the complainant party's written notice, a senior
representative of each party shall meet
Page 2
<PAGE>
or confer within ten (10) business days of a request for such a meeting or
conference by either party to resolve such matter.
(c) In the event that the meeting or conference specified in (b) above
does not resolve such matter, the senior officer of each party shall meet or
confer within ten (10) business days of the request for such a meeting or
conference by either party to discuss and agree upon a mutually satisfactory
resolution of such matter.
(d) If the parties are unable to reach a resolution of the dispute
after following the above procedure, or if either party fails to participate
when requested, the parties may proceed in accordance with paragraph 8.2
below.
8.2 BINDING ARBITRATION. Except as provided in paragraph 8.5 below,
any dispute arising under this Agreement shall, after utilizing the
procedures in paragraph 8.1, be resolved by final and biding arbitration in
Los Angeles, California, before a single arbitrator selected by, and in
accordance with the rules of commercial arbitration of, the American
Arbitration Association or as otherwise provided in Paragraph 11.6. Each
party shall bear its own costs in the arbitration, including attorneys' fees,
and each party shall bear one-half of the cost of the arbitrator.
8.3 ARBITRATOR'S AUTHORITY. The arbitrator shall have the authority to
award such damages as are not prohibited by this Agreement and may, in
addition and in a proper case, declare rights and order specific performance,
but only in accordance with the terms of this Agreement.
8.4 ENFORCEMENT OF ARBITRATOR'S AWARD. Any Party may apply to a court
of general jurisdiction to enforce an arbitrator's award, and if enforcement
is ordered, the party against which the order is issued shall pay the costs
and expenses of the other party in obtaining such order, including responsible
attorneys' fees.
8.5 ACCESS TO COURTS. Notwithstanding the provisions of paragraphs 8.1
and 8.2 above, any action by Netgateway to enforce its rights under
Paragraphs 10.3 of this Agreement or to enjoin any infringement of the same
by Subscriber may, at Netgateway election, be commenced in the state of
federal courts of Los Angeles, California, and Subscriber consents to
personal jurisdiction and venue in such courts for such actions.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement will be effective on the date first above
written and will terminate three (3) years (the "Initial Term") from the date
Subscriber begins processing live data through Netgateway ICC-TM-, unless
earlier terminated according to the provisions of this Section 9. This
Agreement will automatically renew for an additional term of three (3) years
unless a party hereto elects not to so renew and notifies the other party in
writing of such election by a date, which is six (6) months prior to the
lapse of the Initial Term.
9.2 TERMINATION. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days after
receipt of written notice of the same, except in the case of failure to pay
fees, which must be cured within five (5) days after receipt of written
notice from Netgateway; (ii) the other party becomes the subject of a
voluntary petition in bankruptcy or any voluntary proceeding relating to
insolvency, receivership, liquidation, or composition for the benefit of
creditors; (iii) the other party becomes the subject of an involuntary
petition in bankruptcy or any involuntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if
such petition or proceeding is not dismissed within sixty (60) days of
filing; or after the first six (6) months, upon giving sixty (60) days prior
written notice.
9.3 TERMINATION WITHOUT CAUSE AFTER SIX (6) MONTHS. The Subscriber has
the right to terminate this agreement without cause after Six (6) Months with
thirty (30) day notice.
9.4 NO LIABILITY FOR TERMINATION. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with
its terms.
9.5 EFFECT OF TERMINATION. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway will immediately cease
providing the eCommerce Services; (b) any and all payment obligations of
Subscriber under this Agreement will become due immediately; and (c) within
thirty (30) days after such expiration or termination, each party will return
all Confidential Information of the other party in its possession at the time
of expiration or termination and will not make or retain any copies of such
Confidential Information except as required to comply with any applicable
legal or accounting record keeping requirement.
9.6 SURVIVAL. The following provisions will survive any expiration or
termination of the Agreement: Sections 2,3,4,5,6,7,8,9 and 10.
10. USE OF eCOMMERCE SERVICES - RULES AND REGULATIONS.
10.1 PROPRIETARY SYSTEMS. Subscriber acknowledges that the software
systems utilized by Netgateway in the provision of eCommerce Services
hereunder, including all enhancements thereto, and all screens and formats
used in connection therewith are the exclusive proprietary property of
Netgateway, and Subscriber shall not publish, disclose, display, provide
access to or otherwise make available any Netgateway eCommerce software or
products thereof, or any screens, formats, reports or printouts used,
provided, produced or supplied from or in connection therewith, to any person
or entity other than an employee of Subscriber without the prior written
consent of, and on terms acceptable to Netgateway, which consent shall not be
unreasonably withheld; provided, however, that Subscriber may disclose to a
govermental or regulatory agency or to customers of Subscriber any
information expressly prepared and acknowledge in writing by Netgateway as
having been prepared for disclosure to such governmental or regulatory agency
or to such customers. Neither party shall disclose Subscriber's use of
eCommerce Services in any advertising or promotional materials without the
prior written consent to such use, and approval of such materials, by the
other.
10.2 USE OF SERVICES PERSONAL TO SUBSCRIBER. Subscriber agrees that it
will use the services provided hereunder only in connection with its
eCommerce business, and it will not, without the express written permission
of Netgateway, sell, lease, or otherwise provide or make available eCommerce
Services to any third party.
10.3 SURVIVAL OF OBLIGATIONS. The obligations of this paragraph 10
shall survive termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway Software or
copies thereof, or the unauthorized use of eCommerce Service would cause
irreparable harm to Netgateway for which there is no adequate remedy at law.
Subscriber therefore agrees that in the event of such unauthorized disclosure
or use, Netgateway may, at its discretion and at Subscriber's expense,
terminate this Agreement, obtain immediate injunctive relief in a court of
competent jurisdiction, or take such other steps as it deems necessary to
protect its rights. If Netgateway, in its reasonable, good faith judgement,
determines that there is a material risk of such unauthorized disclosure or
use, it may demand immediate assurances, satisfactory to Netgateway, that
there will be no such unauthorized disclosure or use. In the absence of such
assurance, Netgateway may immediately terminate this Agreement and take such
other steps as it deems necessary. The rights of Netgateway hereunder are in
addition to any other remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 FORCE MAJEURE. Except for the obligation to pay money, neither
party will be liable for any failure or delay in its performance under this
Agreement due to any cause beyond its reasonable control, including act of
war, acts of God, earthquake, flood, embargo, riot, sabotage, labor shortage
or dispute, governmental act or failure of the Internet, provided that the
delayed party: (a) gives the other party prompt notice of such cause, and
(b) uses its reasonable commercial efforts to correct promptly such failure
or delay in performance. In the event that Netgateway is unable to complete
the development required for any of the phases contemplated herein due to
reasons set forth in this Section 11.1, Subscriber's payment obligation shall
be suspended, provided, however, that this sentence shall not change the
timing of any payments required for such development.
11.2 NO LEASE. This Agreement is a services agreement and is not
intended to and will not constitute a lease of any real or personal property.
Subscriber acknowledges and agrees that (i) it has been granted only a
license to use Netgateway's ICC and any equipment provided by Netgateway in
accordance with this Agreement, (ii) Subscriber has not been granted any
real property interest in the Netgateway's ICC, and (iii) Subscriber has no
rights as a tenant or otherwise under any real property or landlord/tenant
laws, regulations, or ordinances.
11.3 MARKETING. Subscriber agrees that Netgateway may refer to
Subscriber by trade name and trademark, and may briefly describe Subscriber's
Business, in Netgateway's marketing materials and web site. Subscriber hereby
grants Netgateway a license to use any Subscriber trade names and trademarks
solely in connection with the rights granted to Netgateway pursuant to this
Section 11.3.
11.4 GOVERNMENT REGULATIONS. Subscriber will not export, re-export,
transfer, or make available, whether directly or indirectly, any regulated
item or information to anyone outside the U.S. in connection with this
Agreement without first complying with all export control laws and
regulations which may be imposed by the U.S. Government and any country or
organization of nations within whose jurisdiction Subscriber operates or does
business.
11.5 NON-SOLICITATION. During the period beginning on the Operational
Data and ending on the first anniversary of the termination or expiration of
this Agreement in accordance with its terms, Subscriber agrees that it will
not, and will ensure that its affiliates do not, directly or indirectly,
solicit or attempt to solicit for employment any persons employed by
Netgateway during such period.
11.6 GOVERNING LAW; DISPUTE RESOLUTION, SEVERABILITY; WAIVER. This
Agreement is made under and will be governed by and construed in accordance
with the laws of the State of California (without regard to that body of law
controlling conflicts of law) and specifically excluding from application to
this Agreement that law known as the United Nations Convention on the
International Sales of Goods. Any dispute relating to the terms,
interpretation or performance of this Agreement (other than claims for
preliminary injunctive relief or other pre-judgment remedies) will be
resolved at the request of either party through binding arbitration.
Arbitration will be conducted in Los Angeles County, California, under the
rules and procedures of the Judicial Arbitration and Mediation Society
("JAMS"). The parties will request that JAMS appoint a single arbitrator
possessing knowledge of online services agreements; however the arbitration
will proceed even it such a person is unavailable. In the event any provision
of this Agreement is held by a tribunal of competent jurisdiction to be
contrary to the law, the remaining provisions of this Agreement will remain
in full force and effect. The waiver of any breach or default of this
Agreement will not constitute a waiver of any subsequent breach or default,
and will not act to amend or negate the rights of the waiving party.
11.7 ASSIGNMENT; NOTICES. Subscriber may not assign its rights or
delegate its duties under this Agreement either in whole or in part without
the prior written consent of Netgateway, except that Subscriber may assign
this Agreement in whole as part of a corporate reorganization, consolidation,
merger, or sale of substantially all of its assests. Any attempted
assignment or delegation without such consent will be void. Netgateway may
assign this Agreement in whole or part. This Agreement will bind and inure
to the
Revised - NetGateway (1year) 032399
NETGATEWAY CONFIDENTIAL AND PROPRIETARY (rev 2/99)
Page 3
<PAGE>
benefit of each party's successors and permitted assigns. Any notice or
communication required or permitted to be given hereunder may be delivered by
hand, deposited with an overnight courier, sent by confirmed facsimile, or
mailed by registered or certified mail, return receipt requested, postage
prepaid, in each case to the address of the receiving party indicated on the
signature page hereof, or at such other address as may hereafter be furnished
in writing by either party hereto to the other. Such notice will be deemed to
have been given as of the date it is delivered, mailed or sent, whichever is
earlier.
11.8 RELATIONSHIP OF PARTIES. Netgateway and Subscriber are
independent contractors and this Agreement will not establish any relationship
of partnership, joint venture, employment, franchise or agency between
Netgateway and Subscriber. Neither Netgateway nor Subscriber will have the
power to bind the other or incur obligations on the other's behalf without
the other's prior written consent, except as otherwise expressly provided
herein.
11.9 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, including all
documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the
foregoing and all documents incorporated therein and agree and accept such
terms effective as of the date first above written.
SUBSCRIBER
Signature: /s/ Craig T. Stevens Signature: /s/ Craig T. Stevens
--------------------- ----------------------
Print Name: Craig T. Stevens Print Name: Craig T. Stevens
--------------------- ----------------------
Title: Sr. Managing Director
---------------------
NETGATEWAY
Signature: /s/ Keith D. Freadhoff Signature: /s/ Keith D. Freadhoff
---------------------- ----------------------
Print Name: Keith D. Freadhoff Print Name: Keith D. Freadhoff
---------------------- ----------------------
Title: CEO
----------------------
Page 4
<PAGE>
EXHIBIT "A"
SPECIFICATIONS AND TIME LINE
See attached initial eCommerce Services Order Form.
Page 1
<PAGE>
EXHIBIT "B"
BILLING AND PAYMENT TERMS
Netgateway shall invoice Subscriber monthly in advance of the provision of
Internet Commerce Services, and payment of such fees will be due within
thirty (30) days of the date of each Netgateway invoice. All payments will be
made in U.S. dollars. Late payments hereunder will accrue interest at a rate
of one and one-half percent (1 1/2%) per month, or the highest rate allowed
by applicable law, whichever is lower. If in its reasonable judgment
Netgateway determines that Subscriber is not creditworthy or is otherwise not
financially secure, Netgateway may, upon prior written notice to Subscriber,
modify the payment terms to require full payment before the provision of
eCommerce Services or other assurances to secure Subscriber's payment
obligations hereunder.
Page 1
<PAGE>
APPENDIX A - DESCRIPTION OF WORK PHASES 1 & 2
MARCH 24, 1999
PHASE I - OUTLINE
CBRE VENDOR INTEGRATION
Netgateway will invite companies which have existing contracts with CBRE to
participate in the CBRE Purchasing and CBRE Tenant Purchasing programs. Each
vendor will be contacted via phone to initiate the process and determine the
appropriate party(s) to work with at each vendor organization. A vendor startup
kit will describe the programs and offer a "vendor worksheet" which will be
completed and returned to Netgateway in order to initiate the vendor integration
process. Depending on the capabilities of the vendor and the complexity of
their ordering requirements, one or more follow-up sessions may be necessary via
phone or face-to-face to complete the requirements gathering for a particular
vendor.
Each vendor will be integrated according to a time frame dictated by the
complexity of its integration requirements. Upon establishing the final
requirements documentation for a particular vendor, Netgateway will provide CBRE
an implementation schedule for that vendor.
Each vendor will be implemented into the system according to established
contract terms regarding items such as:
/ / Pricing
/ / Discount schedules (if any)
/ / Shipping methods (if specified)
/ / Blanket purchase orders (if applicable)
Also, vendor specific ordering requirements will be integrated into the CBRE
Employee and Tenant offerings including items such as:
/ / Shipping methods and shipping/handling rates
/ / Taxation
/ / Discount schedules
/ / Specific order information required on each order (i.e. "order
header" items)
/ / Support for backorder and partial shipments
/ / Import of current CBRE ship-to locations in vendor database
/ / Support for product varieties such as - size, color, style, finish
type, capture text fields for imprinting or other use
/ / Special instructions, requested delivery date, ship-to location for
each product ordered
VENDOR STARTUP KIT
After initial phone contact with each vendor, a vendor startup kit will be
supplied to each of CBRE's contract vendors. This standard packet will be
submitted to CBRE for approval before initiating the vendor contact process.
The kit will consist of:
/ / Cover letter
/ / Vendor startup worksheet
/ / Brief vendor question and answer sheet with expected common questions
and answers
/ / Contact information
1 of 7
<PAGE>
VENDOR PARTICIPATION / INTEGRATION OPTIONS
Phase I of the CBRE offering will enable vendors to integrate their business
using one of two methods as described below.
VENDOR INTEGRATION - OPTION 1
/ / Scheduled product catalog updating via file transfer
/ / Order submission file transfer on timed basis
/ / Order status file transfer on timed basis
/ / All file formats will be standard Netgateway ICC in this phase
VENDOR INTEGRATION - OPTION 2
/ / Catalog submitted once via flat file, spreadsheet, or MS Access
database
/ / Changes made via secured area of site allowing vendor to maintain
product catalog
/ / Email sent to vendor with order information, link to secured order
processing section of site allowing for order status updates by vendor
2 of 7
<PAGE>
CBRE EMPLOYEE ACCESS
The system will be implemented to serve the purchasing needs of the CBRE North
American offices according to existing vendor contracts. Authorized CBRE
employees will have access via an Internet web-based application providing order
capabilities and order status/customer service ability according to each
vendor's specific integration into the system.
PURCHASING WORKFLOW
CBRE employees will be presented an easy to use, streamlined interface for
purchasing items from the participating vendors. The diagram below demonstrates
a sample user session.
[FLOW CHART]
3 of 7
<PAGE>
EMPLOYEE ACCESSIBILITY
In order to use the system, there are certain minimum requirements at each CBRE
office and intended employees must be equipped with a base level of computing
technology.
/ / Location requirements - Each location must have telecommunications
capabilities, at the very least a standard, reliable telephone
connection. Locations with local area networks may optionally
provision Internet access via third party ISP services with full time,
LAN connected access.
/ / Computing requirements -
- Internet Connection - Either LAN connected Internet access
as described above, or individual PC access via dedicated or
on-demand circuit (dial up). Acceptable base connectivity
will be via standard 56k modem to reliable third party ISP.
- Web browser - Microsoft Internet Explorer v4 or above,
Netscape Navigator v4 or above.
- Computer - Any PC or Macintosh computer equipped to minimum
standards required by above web browsers.
SYSTEM ADMINISTRATION
A secured, "System Administration" module will be accessible via web-based
interface, allowing CBRE authorized personnel to control certain aspects of the
employee purchasing system.
Capabilities will include:
/ / Secure, web based access
/ / Ability to create new system access user accounts
/ / Ability to define an account as "administrator" which will authorize
access to this section
/ / Review all open and history orders processed by the system
/ / Define system inactivity time-out value (in minutes) to expire user
sessions if inactive
/ / Disable system access to everyone but administrators
/ / Disable a particular vendor store to everyone but administrators
PURCHASING RULES
When CBRE employees initiate an ordering session in the system, rules are
applied to that session based on defined settings for both CBRE and the
vendors. The listing below describes rules that will be enforced during an
ordering session.
/ / Rules applied according to user and group profiles as created in CBRE
system administration
/ / Vendor order information requirements applied as needed to fulfill
contract and vendor specific ordering issues
/ / Pre-defined and/or restricted ship-to location by user
/ / Ability to apply blanket purchase order numbers to a vendor order
/ / Automatic generation of a purchase order number (incrementing
number) for orders to any or all vendors
/ / Specify delivery required date if vendor accepts such request
/ / Pricing calculated according to vendor requirements and contract terms
/ / Taxation applied according to vendor requirements
/ / Shipping methods and cost applied according to vendor requirements
PRODUCT NAVIGATION
The application will be capable of locating products and ordering products
through a streamlined process. One method for locating product will be to
"browse" or navigate to a product using a display of either product categories
or vendor names. This hierarchical method of navigation is the easiest way for
users to locate products when unsure which specific product to purchase.
4 of 7
<PAGE>
SEARCH
A flexible search mechanism will allow customers to quickly locate products
according to information entered. The search mechanism will be prominently
displayed on the web page in order to ensure quick access to the function. The
CBRE system search will enable the user to query the product catalog information
including:
/ / Product name
/ / Product description
/ / Product "keywords"
/ / Product number
/ / Model number
/ / Manufacturer name
PRODUCT DETAIL
The system will accommodate complex product detail in order to provide complete
information necessary to order products and to allow for product specific
selections (varieties such us: size, color, etc.) as required to complete an
order. Product detail will include the items:
/ / Small and large product photos
/ / Product name
/ / Product number
/ / Manufacturer
/ / Product brief description
/ / Product detailed description
/ / Product additional detail/specs
- Available for download, MS Word or PDF format (application or
viewer required)
/ / Product variants such as color, size, finish, imprint text, etc. as
required by vendor
ORDER PROCESSING
Completion of orders will occur after products have been selected from various
categories or vendors. A completed order will be presented to the buyer for
verification before final submission. If the buyer selects products from
multiple vendors, the orders will be displayed separately and appropriate
information will be prompted for each vendor. Common order elements between
vendors such as ship-to address will default to the first vendor order in the
batch in order to prevent re-keying information while still allowing
modifications if necessary. Order completion and processing will be applied
according to both CBRE and vendor defined rules for ordering. Key elements of
order processing include:
/ / "shopping cart" - this is a listing of currently selected items a user
wishes to purchase
/ / Order Header information - this information is equal to common fields
typically found at the beginning of a paper purchase order form
- Order number (or PO number)
- Shipping address
- Billing address
- Vendor name
- Attention to: delivery notice
- Other items as required by CBRE and vendor
/ / Pricing - item pricing is displayed in the shopping cart and on order
confirmations and totals
/ / Quantity - each line item in an order will display quantity ordered
/ / Per vendor sub totals - which will include all merchandise, taxes, and
shipping
/ / Per vendor
/ / Shipping Methods
/ / Payment terms
5 of 7
<PAGE>
CUSTOMER SERVICE
This section of the application will provide 7X24 access to order status,
including shipping tracking information if provided by the vendor. The user will
also be able to request customer support via email concerning any particular
order or address any other issue as required.
/ / Order status - will display a summary listing of all open (not
shipped) orders
/ / Order history - will allow for historical viewing of orders for
specified time
/ / Order detail - clicking on an individual order from the open order
status or history sections will display the complete order detail
including all line items
HELP TEXT FOR EACH SECTION
Each primary section of the CBRE application will have help text to explain the
basic elements of each page.
DOCUMENTATION
Netgateway will develop customized documentation for users of the Phase I system
which will include regular users of the system (those who purchase products) and
administrators. The documentation will be provided in limited printed copies
and in digital format for reproduction as needed by CBRE.
REPORTING
Basic reporting features included in Phase I will include:
/ / Order status
/ / Order history
/ / Administrative reports including all orders
/ / Site "hit" reports showing system usage
CBRE TENANT AND LEASING CLIENT ACCESS
CBRE's Tenants and Leasing Clients will have the capability to order products
and service from existing contract vendors who are integrated into the system.
The functionality provided to them will mirror the CBRE Employee system with the
exception of:
/ / Different design elements such as graphics
/ / Text tailored to specifics of program offered to Tenants
/ / Purchases can be made via credit card and processed through the
vendor's account
/ / If vendor permits, purchases can be charged to Tenant's vendor account
/ / Tenant does not have Administrative capabilities
/ / Tenant store can have a separate "front end" web site describing the
program offering
PHASE II - OUTLINE
CBRE VENDOR INTEGRATION
ADDITIONAL INTEGRATION CAPABILITY
Scheduled product catalog update
Real time pricing and availability
Real time order status
ADDITIONAL INTEGRATION CAPABILITY
EDI integration for catalog, order submission, order status
6 of 7
<PAGE>
CBRE EMPLOYEE ACCESS
PERSONALIZATION CAPABILITIES
/ / Create standard purchase lists/configurations - per personal account,
per group
/ / Frequent purchases
ONLINE QUOTATIONS FOR ITEMS AS DESIGNATED BY VENDOR
The vendor will have the capability to place products in the system that will be
handled via online quote.
PURCHASE APPROVAL WORKFLOW
A basic workflow system will enable rules to be defined for individual or group
that will mandate a specified manager's approval before the purchase is
forwarded to the vendor. The manager will be notified via email with a link to
the purchase request in the CBRE system. The manager can approve or deny the
request. Approval or denial will trigger an email to the person submitting the
purchase request. Purchase requests can be triggered by:
/ / Employee purchases above defined spending limit for order
/ / Employee purchases beyond current budget
/ / All purchases for a specific employee or group can be trapped for
approval if defined in administration
ENHANCED SEARCH
Provides for complex searching including restricting search fields and
specifying "and, or, not" search rules.
BUDGET TRACKING AND REPORTING
This functionality provides both a cost containment capability by preventing
purchase beyond budget (if desired) and as a reporting tool. Key elements
include:
/ / Track budgets by "groups" or individuals defined in administration
/ / Deny purchases or route to manager if spending is beyond budget
SYSTEM ADMINISTRATION ENHANCEMENTS
/ / Define and manage user groups
- Add, delete, modify groups
- Define which vendors a group can shop from
- Define groups as "budget/accounting centers" for reporting
purposes
/ / Define group access to certain products
/ / Define group (budget center) budgets
/ / Review user activity reports including: current users in system,
specify user system activity: last time used
/ / User password expirations
- Define default password expiration schedule (days)
- Force password expiration at next login session for
individual or group
CBRE TENANT AND LEASING CLIENT ACCESS
The Phase II Tenant and Client Access system will include all of the enhancement
features of the Phase II CBRE Employee Access system with the exception of:
/ / No budget tracking or group definition
/ / Limited administration capabilities to allow purchasing workflow
approval only
7 of 7
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
SUBSCRIBER NAME: CB RICHARD ELLIS
FORM DATE: MARCH 24, 1999
FORM NO.: 001
GENERAL INFORMATION:
1. By submitting this eCommerce Services Order Form ("Form") to
Netgateway, Subscriber hereby places an order for the eCommerce
Services described herein pursuant to the terms and conditions of the
Internet Data Center Services Agreement between Subscriber and
Netgateway (the "ECS AGREEMENT").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first
begins to process transactions through the Netgateway Internet Commerce
Center, whichever occurs first.
3. Netgateway will provide the eCommerce Services pursuant to the terms and
conditions of the ECS Agreement, which incorporates this Form. The
terms of this Form supersede, and by accepting this Form Netgateway
hereby rejects, any conflicting or additional terms provided by
Subscriber in connection with Netgateway's provision of the eCommerce
Services. If there is a conflict between this Form and any other Form
provided by Customer and accepted by Exodus, the Form with the latest
date will control.
4. Netgateway will not be bound by or required to provide eCommerce
Services pursuant to this Form or the ECS Agreement until each is
signed by an authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Submitted By: /s/ Craig T. Stevens Operational Date: June 1, 1999
------------------------
(AUTHORIZED SIGNATURE)
Print Name: Craig T. Stevens
------------------------
Title: SR Managing Director
------------------------
NETGATEWAY ACCEPTANCE
/s/ Keith D. Freadhoff Date: 3/24/99
- ---------------------------------- -------------------------------
(AUTHORIZED SIGNATURE: Keith D. Freadhoff
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
SUBSCRIBER NAME: CB RICHARD ELLIS
FORM DATE: MARCH 24, 1999
FORM NO.: 001
TERMS:
1. The initial development fee for Phases I and II, descriptions of which
are attached hereto as Exhibits A and B, will be [**REDACTED**] due and
payable upon submission of this Order Form.
2. The development fee for Phase III will be [**REDACTED**] due and payable
five (5) days prior to commencement of the Phase III development.
3. The Development timeline and Phase specification to be pursuant to the
mutual agreement of the parties.
4. ICC Commerce Rate (Transaction Rate). Netgateway transaction fee to be
as follows:
The [**REDACTED**] of total transaction revenues each month.
[**REDACTED**] of all transaction revenues in excess of the
[**REDACTED**] each month.
For purposes hereof, transaction revenues shall mean all revenues
generated from transactions processed through the Netgateway infrastructure
which are related to Subscriber or Subscriber's mall.
5. Fee Per Hit. Netgateway to receive [**REDACTED**] per hit (as that term is
customarily understood in the industry), up to a maximum [**REDACTED**] per
month.
6. Netgateway to receive [**REDACTED**] percent of advertising and
[**REDACTED**] percent of the click-through revenue [**REDACTED**] CBRE
receives from the advertiser placed on the subscriber mall or web site.
This fee will not apply to advertising for divisions of subscriber.
7. Netgateway to receive [**REDACTED**] percent of advertising and
[**REDACTED**] percent of the click-through revenue for Netgateway
placed ads placed on the Subscriber mall or web site, provided, however,
that Subscriber may reject an advertiser or click-through relationship.
Subscriber's Initials CTS
-----------
Page 2
<PAGE>
Advertising and click-through revenue shall be determined and defined
based on the various advertising and click-through contracts obtained with
respect to Subscriber's eCommerce Services. Copies of such contracts will
be provided to Subscriber.
8. Development Timeline.
- ECS Agreement to be signed by March 24, 1999.
- Design of Specifications to be completed by April 9, 1999
- Phase I Implementation June 1, 1999
9. Description of Phases. See Attached Schedule 1.
10. Both parties are public companies and be affected by the manner or
content of public announcements concerning this relationship.
Neither party shall make any public announcement of this Agreement or
of the relationship they have entered into without the prior written
consent of the other. Neither party may unreasonable withhold this
consent.
SCHEDULE 1
DESCRIPTION OF PHASES
PHASE I
The specifications for Phase I will be determined by the mutual agreement
of Netgateway and CBRE, but shall in general include the following:(1)
[**REDACTED**]
Tie-in other CBRE divisions that have products/services to sell via the
Internet into the CBRE e-commerce backbone. The parties will mutually
agree upon a standard set of specifications (the "STANDARD"). Netgateway
will be entitled to charge reasonable development fees for any such tie-ins
that exceed the Standard.
- ---------------
(1) In general, those Vendors having pre-existing connectivity or who are
ready to connect (estimated to be between 5 and 6 vendors) will be connected
first. Vendors without connectivity will be connected in Phase II, however
such vendors will be eligible to have bulletin board sites set up. Such
sites will not have dynamic information exchange. Phase I is projected to
span 2 months and be completed by June 1, 1999.
Subscriber's Initials CTS
-----------
Page 3
<PAGE>
[**REDACTED**]
Subscriber's Initials CTS
-----------
Page 4
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
STORESONLINE.COM
RESELLER AND MALL AGREEMENT
Wireless One
THIS RESELLER AND MALL AGREEMENT (the "AGREEMENT") is made and entered into as
of the date set forth on the Addendum attached hereto and by this reference made
a part hereof (the "ADDENDUM"), between and among STORESONLINE.COM, INC., a
California corporation, and NETGATEWAY, a Nevada corporation , on the one hand
(collectively, "STORESONLINE"), and the Reseller identified on the Addendum, on
the other hand ("RESELLER").
R E C I T A L S
A. Reseller is an established business entity, engaged in the business
of providing high speed wireless Internet access, data transmission and
telephone services and analog wireless multichannel subscription television
programming services primarily in small to mid-size markets (the "Systems") in
the southern and southeastern United States.
B. StoresOnline owns, operates and maintains an Internet
storefront-building services package comprised of certain services delivered
through StoresOnline's proprietary software, the standard features of which
are more particularly described on the Addendum (the "SERVICES").
C. The Services are delivered through the Internet and shall be made
available through a private, branded electronic exchange to be developed for
Reseller.
D. StoresOnline desires to (i) sell and license the Services to
Reseller for Reseller's own use and for resale and sublicense to end-user
customers or, with the written permission of StoresOnline, to other resellers
and (ii) develop an on-line electronic shopping mall to be branded around
Reseller's name, brand and image (as further described herein, the "Mall").
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. SERVICES.
a. SCOPE OF AGREEMENT. This Agreement covers (i) the purchase,
licensing and sale of the Services and (ii) the design and development of the
Mall pursuant to and in accordance with the terms and conditions set forth on
the Addendum.
b. LICENSE GRANT; SALE OF SERVICES. StoresOnline grants to
Reseller, subject to the terms and conditions of this Agreement, the
non-exclusive right and license to resell and sublicense (in the case of
software products), the Services to Reseller's end-user customers or, with
the written permission of StoresOnline, to other resellers. In the case of
software products, Reseller acknowledges that such software is and will
remain proprietary to StoresOnline, is copyrighted and that Reseller acquires
no right, title or interest in or to any such software by this Agreement.
Reseller agrees to sublicense the Services hereunder to its end-user
customers or to other resellers, as the case may be, pursuant to the terms
hereof and the Standard License Agreement Terms set forthon Exhibit "A"
hereto, and to cause each of its customers or other resellers to sublicense
the Services pursuant to such terms, which terms, in the case of a reseller,
shall be deemed accepted upon store set-up, and in the case of end-user
customers, shall be accepted electronically as part of the storefront
registration process described below.
c. PRODUCT NAME. It is expressly agreed that the ownership and all
right, title and interest in and to the Services and any trademark, trade name,
patent or copyright relating to the Services is and will remain vested solely in
StoresOnline; PROVIDED, HOWEVER, that as permitted by this Agreement, Reseller
may use any existing or future trademark, trade name, patent or copyright
relating to the Services, such use to be limited to promoting, selling,
installing or maintaining the Services; and PROVIDED, FURTHER, that as permitted
by this Agreement, the Services may be branded around Reseller's name, brand and
image. Reseller shall use its best efforts during the term of this Agreement to
protect StoresOnline's trademarks, trade names, patents and copyrights, but
shall not be required to instigate legal action against third parties for any
infringement thereof. Reseller shall notify StoresOnline of any infringement as
soon as practicable after becoming aware of any such infringement. Reseller
shall not use, directly or indirectly, in whole or in part, StoresOnline's name
or any other trade name or trademark that is owned or used by StoresOnline in
connection with any product other than StoresOnline's products, without the
prior written consent of StoresOnline.
d. MALL DEVELOPMENT. StoresOnline shall develop the Mall in
accordance with the terms and conditions set forth herein and on the
Addendum. The Mall shall be branded around Reseller'name, brand and image
and shall link to the Reseller's branded StoresOnline solution. The Mall
will include an appropriate URL address, four to six featured products and
stores from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text
references, and links to top-tier eCommerce sites. The Mall will also
include an appropriate search engine, commerce functionality, banner and
other appropriate advertising space and such other features as the parties
shall mutually agree. The Mall will be capable of cataloguing stores
independently or in conjunction with all other malls that belong to the
StoresOnline electronic mall network.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as
of the execution hereof and continue for an initial term of two (2) years.
Such term shall automatically be extended for additional one-year terms
thereafter unless either party notifies the other, not less than thirty (30)
days prior to the expiration of the applicable term, of its intention not to
renew this Agreement.
a. Notwithstanding the foregoing, this Agreement may be terminated in
accordance with the provisions of Section 10.
b. Termination of this Agreement shall not relieve either party of any
obligations incurred prior to termination, including outstanding delivery and
payment obligations and other contractual commitments herein or mutually agreed
to by the parties from time to time in writing. The obligations set forth in
Sections 3d, 6b, 8, 10a, 12c, 12e, 12f and 12h are expressly intended to survive
termination of this Agreement.
3. PRICES AND TAXES.
a. PRICES FOR SERVICES . StoresOnline shall charge Reseller the
one-time Store Set-up Price set forth on the Addendum for each of Reseller's
customers. StoresOnline shall also charge Reseller the applicable Monthly
Base Wholesale Price set forth on the Addendum. The pricing set forth in the
Addendum is contingent upon Reseller's agreement to sell the Services only in
the Tier designated in the Addendum. In the event that Reseller sells
outside the Tier during the term of this Agreement, all Services from the
commencement of this Agreement shall be charged retroactively at the Default
Rate set forth in the Addendum.
b. PRICE ADJUSTMENTS FOR SERVICES. The prices for the Services are
subject to change by StoresOnline at any time, and shall become effective
ninety (90) days after the date of written notification of such change to
Reseller, provided, however, that StoresOnline shall not increase the Monthly
Base Wholesale Price more than ten percent (10%) per annum during any
applicable term of this Agreement.
c. RETAIL PRICES FOR SERVICES. On or before the first day of each
month, Reseller shall provide StoresOnline with a list of the Reseller prices
charged for each class of Accounts or for each Account (as hereinafter
defined).
d. PRICES FOR MALL DEVELOPMENT; MALL REVENUE SPLIT. All prices for
Mall design, development and operation provided hereunder shall be as set
forth on the Addendum. It is anticipated that the Mall will generate multiple
revenue streams. Reseller and StoresOnline shall split the net revenue
generated from all such revenue sources on a [**REDACTED**] basis. Such revenue
sources to be split shall include, but are not limited to: (1) eCommerce
advertisers provided by StoresOnline, ii) the pro rata share of Mall banner
advertising attributable to Reseller, (iii) click-through revenue from
eTeller sales; and (iv) revenue generated from featured product sales. The
parties hereto shall mutually agree to pricing in the event advertising space
is sold on a straight-buy basis.
e. TAXES. All prices for any services or products supplied
hereunder are exclusive of any federal, state or local sales, use, excise, AD
VALOREM or personal property taxes levied, or any fines, forfeitures or
penalties assessed in connection therewith, as a result of this Agreement or the
installation or use of services or products hereunder (collectively, but
exclusive of taxes based on StoresOnline's income, "Taxes"). Reseller or
Reseller's customer shall pay any and all such Taxes, or StoresOnline may, to
the extent required by applicable law, pay such Taxes for Reseller's account or
Reseller's customer's account, in which
<PAGE>
case Reseller shall be obligated to reimburse StoresOnline for amounts so
paid. Any such Taxes which are so paid by StoresOnline will be invoiced to
and paid by Reseller in the manner set forth in Section 6 below.
4. FORECASTS. Within thirty (30) days of execution of this Agreement,
Reseller shall provide StoresOnline with a written, non-binding forecast of
Reseller's projected purchases of Services for the following twelve (12)
calendar months, with projected Account quantities to be identified by month.
Such forecast shall be updated quarterly by Reseller to set forth forecasts for
each subsequent twelve (12) month period.
5. CUSTOMER ACCOUNTS.
a. CUSTOMER ACCOUNT REGISTRATION PROCESS. The Services provided
hereunder include an online registration process that Reseller and its
customers will use to establish storefront accounts with StoresOnline (the
"Accounts"). In order to establish an Account, Reseller's customers must
complete an on-line registration process in accordance with the terms set
forth on the StoresOnline website. At the option of the customer,
registration may also be completed non-electronically. The general terms and
conditions for the use of Accounts shall be posted from time to time on the
StoresOnline web site, or in the event that StoresOnline establishes an
electronic exchange for Reseller, such information will be posted on
Reseller's exchange. The terms and conditions as posted shall, in all events
and at all times, be binding upon the Reseller and its customers which
establish Accounts. The terms and conditions governing such Accounts may be
amended or canceled, from time to time, upon thirty (30) days prior
electronic notice to Reseller. To establish an Account, Reseller's customers
must provide credit card information and authorize the payment of fees for
Services on a monthly basis in advance.
b. CONTINUATION OF CUSTOMER ACCOUNTS. Continuation of each Account is
subject to the timely payment of the monthly fees associated with such Account,
and failure to do so shall constitute grounds for StoresOnline to cancel and
terminate an Account.
6. BILLING AND PAYMENT TERMS.
a. INVOICING FOR SERVICES.. In the event Reseller requests that
StoresOnline invoice Reseller's customers directly, StoresOnline shall
electronically invoice Reseller's customers and directly charge against the
credit card accounts provided by such customers for that purpose during the
registration process on a monthly basis for the retail price of the Services
charged by Reseller. All fees due from customers shall be paid in advance and
are due on the first day of each month. In preparing the invoices and charging
against the applicable credit cards, StoresOnline shall use the most recent
Reseller retail prices provided to StoresOnline by Reseller pursuant to Section
3c hereof for the Accounts invoiced.
b. PAYMENT AND COLLECTION FOR SERVICES. . StoresOnline shall collect
the monthly fees set by Reseller from Reseller's customers and, after
deducting any monthly fees and expenses to which it is entitled hereunder,
shall remit the balance to Reseller on a monthly basis, together with a
statement setting forth the amounts collected, the amounts deducted and the
total amount remitted. In the event payment is not received by StoresOnline
within the specified time (net of 15 days), an additional late charge of one
and one half percent (1.5%) of the past due amount will be assessed for each
thirty (30) days outstanding, prorated on a daily basis. All payments for
Services shall be made in United States dollars.
c. DIRECT RESELLER BILLING FOR SERVICES. In the event that
Reseller chooses to bill its customers directly for the Services, Reseller shall
remit directly to StoresOnline the applicable monthly wholesale price (per
storefront). All such fees shall be paid in advance and are due on the first day
of each month.
d. BILLING FOR MALL RELATED CHARGES; ADVERTISING AND RELATED
REVENUES. StoresOnline shall invoice Reseller directly for all charges due
hereunder in connection with the design, development and operation of the Mall,
which charges shall be payable in full in advance. All revenues generated from
the Mall (including advertising and related revenues) which are to required to
be split between StoresOnline and Reseller pursuant to paragraph 3(d) hereof
shall be invoiced and collected by StoresOnline. StoresOnline shall thereafter
forward all amounts due, if any, to Reseller (net 30 days) at the address
provided on the signature page hereto, together with a statement setting forth
the total revenue amounts collected, the amounts thereof payable to Reseller and
the total amount remitted.
7. REAL TIME PAYMENT PROCESSING. In the event that a customer wishes to
use the StoresOnline real-time credit card payment processing option, such
customer must establish a customer account with an FDIC network bank and must
open an account with a participating credit-card processor.
8. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
THERE ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND DISCLAIMS ANY,
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTIES OF THE
CORRECTNESS, ACCURACY, PRECISION, TIMELINESS OR COMPLETENESS OF ANY INFORMATION
OR SERVICES PROVIDED HEREUNDER.
b. LIMITATION OF LIABILITY. STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO RESELLER OR TO ANY THIRD
PARTY FOR ANY LOSS OR DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS
OR INTERRUPTIONS OF SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR
DIFFICULTIES, STORMS, STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR
OTHER CAUSES OVER WHICH STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES,
EMPLOYEES OR AGENTS AGAINST WHOM LIABILITY IS SOUGHT, HAVE NO REASONABLE
CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR INDIRECT, RESULTING FROM INACCURACIES,
ERRONEOUS STATEMENTS, ERRORS OF FACTS, OMISSIONS OR ERRORS IN THE TRANSMISSION
OR DELIVERY OF THE SERVICES, OR ANY DATA PROVIDED AS A PART OF THE SERVICES
PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY THE NEGLIGENCE OR
WILLFUL MISCONDUCT OF STORESONLINE. IN ALL CASE ARISING FROM EVENTS OCCURRING
DURING THE TERM OF THIS AGREEMENT, WHETHER BASED UPON TORT, CONTRACT, WARRANTY,
INDEMNITY, CONTRIBUTION OR OTHERWISE, DAMAGES SHALL BE LIMITED TO, AND RESELLER
AGREES NOT TO MAKE ANY CLAIMS OR CLAIMS EXCEEDING TWENTY FIVE THOUSAND DOLLARS
($25,000), REGARDLESS OF HOW MANY CLAIMS RESELLER MAY HAVE; PROVIDED, HOWEVER,
THAT THE DOLLAR LIMITATION SET FORTH IN THIS SENTENCE SHALL NOT APPLY TO MONIES
DUE TO RESELLER IN CONNECTION WITH ANY OF RESELLER'S ACCOUNTS ESTABLISHED
PURSUANT TO THIS AGREEMENT. IN ADDITION, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES WHICH THE OTHER PARTY OR SUCH THIRD PARTY MAY
INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR
UTILIZING THE SERVICES, REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN
PART, BY THE NEGLIGENCE OF THE OTHER PARTY.
C. TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY RESELLER AGAINST
STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES, AGENTS, SUCCESSORS
OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN TWO (2) YEARS OF THE FIRST OCCURRENCE GIVING RISE TO SUCH
CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT
THE LIMITATION OF STORESONLINE'S LIABILITY SET FORTH IN THIS PARAGRAPH 8 OR
ELSEWHERE IN THIS AGREEMENT NOR THE INFRINGEMENT OBLIGATIONS OF STORESONLINE
SET FORTH IN PARAGRAPH 8d.
D. INFRINGEMENT. StoresOnline will indemnify and hold Reseller harm-
less from and against any claim by third parties pertaining to the infringement
of U.S. copyrights, trademarks or patents arising solely from Reseller's use of
any of computer programs or software products utilized by StoreOnline to provide
the Services as authorized hereunder, provided that such computer programs or
software products have not been altered, revised or modified by Reseller in a
manner that causes the alleged infringement, and further provided that: (i)
Reseller promptly notifies StoresOnline in writing of such claim; (ii)
StoresOnline will have sole control of the defense of any action on such claim
and of all negotiations for its settlement or compromise; (iii) Reseller
cooperates with StoresOnline in every reasonable way to facilitate the
settlement or defense of such claim; and (iv) should such Services become or, in
StoresOnline's opinion, be likely to become, the subject of an infringement
claim, Reseller will permit StoresOnline, at StoresOnline's expense, to (1)
procure for Reseller the right to continue using such Services, or (2) replace
or modify the same to become functionally equivalent yet non-infringing, or (3)
upon the failure of (1) and (2) above, terminate, without penalty, Reseller's
use of the affected
<PAGE>
Services, in which event StoresOnline will refund to Reseller on a pro-rata
basis any prepaid amounts related thereto. Notwithstanding the foregoing,
StoresOnline shall not be liable to indemnify Reseller for any claims of
infringement by third parties relating in any manner to the contents of the
Mall or any of the third party merchants' storefronts contained therein
provided by Reseller or any of its end-user customers.
e. DISCLAIMER. THE WARRANTIES AND CONDITIONS SET FORTH HEREIN AND THE
OBLIGATIONS AND LIABILITIES OF STORESONLINE HEREUNDER ARE IN LIEU OF, AND BUYER
HEREBY WAIVES, ALL EXPRESS AND IMPLIED WARRANTIES AND CONDITIONS, INCLUDING,
WITHOUT LIMITATION, THOSE OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
9. DOCUMENTATION AND TRAINING. Provided that Reseller has met the
minimum performance standards set forth elsewhere in this Agreement,
StoresOnline shall, on a semi-annual basis, provide free-of-charge a one (1) day
training program for employees designated by Reseller at the Reseller corporate
headquarters. Additional training by StoresOnline shall be made available to
Reseller at StoresOnline's standard rates. All expenses of the trainees under
this Section 9 shall be borne solely by Reseller.
10. DEFAULT.
a. RESELLER'S DEFAULT. The failure by Reseller to make any payment
required hereunder or a material breach by Reseller of its obligations hereunder
shall constitute an event of default by Reseller. Upon the occurrence of an
event of default, StoresOnline shall provide Reseller with written notice
specifying the nature of such default. If Reseller has not cured such default
within thirty (30) days after receipt of such notice, StoresOnline may, at its
sole discretion, terminate this Agreement and/or seek any other available
remedies available at law or in equity; PROVIDED, HOWEVER, that the cancellation
of this Agreement shall not prevent Reseller from reselling the Services (and
sublicensing the software component thereof) previously paid for by Reseller and
sublicenses previously granted by Reseller pursuant hereto shall not be affected
by such termination.
b. STORESONLINE'S DEFAULT. A material breach by StoresOnline of its
obligations hereunder shall constitute an event of default by StoresOnline.
Upon the occurrence of an event of default by StoresOnline, Reseller shall
provide StoresOnline with written notice specifying the nature of such default.
If StoresOnline fails to cure such default within thirty (30) days after receipt
of such notice, Reseller may, at its sole option, terminate this Agreement.
c. INSOLVENCY. Except for the pending Chapter 11 bankruptcy
proceeding of Reseller, the commencement of any proceeding (voluntary or
involuntary) in bankruptcy or insolvency by or against either party hereto,
or the appointment (with or without the party's consent) of an assignee for
the benefit of creditors or a receiver with respect to either party hereto
shall constitute an event of default hereunder, and the non-defaulting party
may elect to terminate this Agreement immediately.
11. DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising under this
Agreement be resolved expeditiously, amicably, and at the level within each
party's organization that is most knowledgeable about the disputed issue. The
parties understand and agree that the procedures outlined in this Paragraph 11
are not intended to supplant the routine handling of inquiries and complaints
through informal contact with customer service representatives or other
designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "DISPUTE" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as provided in subparagraph e. below, may be submitted to
arbitration, the parties shall first follow the informal and escalating
procedures set forth below.
(1) The complaining party will notify the other party in writing of
the dispute, and the non-complaining party will exercise good faith efforts to
resolve the matter as expeditiously as possible.
(2) In the event that such matter remains unresolved for thirty (30)
days after the delivery of the complaining party's written notice, a senior
representative (vice president or above) of each party shall meet or confer
within ten (10) business days of a request for such a meeting or conference by
either party to resolve such matter.
(3) In the event that the meeting or conference specified in (2)
above does not resolve such matter, a senior officer (senior vice-president or
above) of each party shall meet or confer within ten (10) business days of the
request for such a meeting or conference by either party to discuss and agree
upon a mutually satisfactory resolution of such matter.
(4) If the parties are unable to reach a resolution of the dispute
after following the above procedure, or if either party fails to participate
when requested, the parties may proceed in accordance with subparagraph b.
below.
b. Except as provided in subparagraph e. below, any dispute arising
under this Agreement shall, after utilizing the procedures in subparagraph
a., be resolved by final and binding arbitration in Long Beach, California,
before a single arbitrator selected by, and in accordance with, the rules of
commercial arbitration of the American Arbitration Association. Each party
shall bear its own costs in the arbitration, including attorneys' fees, and
each party shall bear one-half of the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages as are
not prohibited by this Agreement and may, in addition and in a proper case,
declare rights and order specific performance, but only in accordance with the
terms of this Agreement.
d. Either party may apply to a court of general jurisdiction to
enforce a arbitrator's award, and if enforcement is ordered, the party
against which the order is issued shall pay the costs and expenses of the
other party in obtaining such order, including reasonable attorneys' fees.
e. Notwithstanding the provisions of subparagraphs a. and b. above, any
action by StoresOnline to enforce its rights under Paragraph 12e of this
Agreement or to enjoin any infringement of the same by Reseller may, at
StoresOnline's election, be commenced in the state or federal courts of
California, and Reseller consents to personal jurisdiction and venue in such
courts for such actions.
12. GENERAL.
a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between StoresOnline and Reseller and supersedes all previous
understandings, negotiations and proposals, whether written or oral. This
Agreement may not be altered, amended or modified except by an instrument in
writing signed by duly authorized representatives of each party. In the event
that any one or more provisions contained in this Agreement should for any
reason be held to be unenforceable in any respect, such unenforceability shall
not affect any other provisions hereof, and this Agreement shall be construed as
if such unenforceable provision had not been contained herein.
b. FORCE MAJEURE. Neither party shall be liable to the other for
delays or failures to perform an obligation to the other hereunder if such
delay or failure to perform is due to any act of God, acts of civil or
military authority, labor disputes, fire, riots, civil commotion's, sabotage,
war, embargo, blockage, floods, epidemics, delays in transportation,
inability beyond StoresOnline's reasonable control to obtain necessary labor,
materials or manufacturing facilities, or when due to governmental
restrictions, including the inability of StoresOnline to obtain appropriate
U.S. export license approval or the subsequent suspension of same. In the
event of any such delay or failure, the parties shall have an additional
period of time equal to the time lost by reason of the foregoing in which to
perform hereunder.
c. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without regard to principles of choice of
law.
d. ASSIGNMENT. Reseller shall not assign this Agreement or any rights
hereunder without the prior written consent of StoresOnline, which consent shall
not be unreasonably withheld; provided, however, that either party may assign
this Agreement to a subsidiary or affiliate corporation provided the assigning
party remains wholly liable for the performance of all duties and obligations
hereunder.
e. DISCLOSURE OF INFORMATION. Reseller acknowledges that, in the
course of purchasing Services and meeting its obligations under this
Agreement, it will obtain information relating to the Services and to
StoresOnline, which is of a confidential and proprietary nature
("STORESONLINE PROPRIETARY INFORMATION"). Such StoresOnline Proprietary
Information may include, but is not limited to, trade secrets, know-how,
inventions, techniques, processes, programs, schematics, data, customer
lists, financial information and sales and marketing plans.
Reseller shall at all times during the term of this Agreement and for
three years after its termination, keep in confidence and trust from any person
or entity all StoresOnline Proprietary Information and shall not disclose or use
such StoresOnline Proprietary Information without the prior written consent of
StoresOnline, unless compelled to disclose such StoresOnline Proprietary
Information by judicial or administrative process (including, without
limitation, in connection with obtaining the necessary approvals of this
Agreement and the transactions contemplated hereby of governmental or regulatory
authorities) or by other requirements of law. Upon termination of this
Agreement, Reseller shall promptly return to StoresOnline all StoresOnline
Proprietary Information under its control and all copies thereof.
<PAGE>
Neither party shall disclose the specific terms of this Agreement to any
third parties except as may be mutually agreed or as required by law or the
order of a court of competent jurisdiction.
The above limitations on disclosure of StoresOnline Proprietary
Information shall not apply to information which becomes publicly available
through no act of Reseller, is released by StoresOnline in writing with no
restrictions, is lawfully obtained by Reseller without breach of this Agreement
from third parties without obligations of confidentiality, is previously known
by Reseller without similar restrictions as shown by documents in its possession
prior to disclosure by StoresOnline or is independently developed by Reseller.
f. COMPLIANCE WITH LAW. Reseller shall comply with all applicable law
the violation of which would have a material adverse effect on StoresOnline or
its business, including the export control laws of the United States of America
and prevailing regulations which may be issued from time to time by the United
States Department of Commerce and any export control regulations of the United
States and those countries involved in transactions concerning the exporting,
importing and re-exporting of Services purchased under application of these
terms and conditions. Reseller shall also comply with the United States Foreign
Corrupt Practices Act and shall indemnify StoresOnline from violations of such
act by Reseller. This provision shall survive any termination or expiration of
the Agreement.
g. EXERCISE OF REMEDIES. Any delay or omission by either party to
exercise any right or remedy under this Agreement shall not be construed to be a
waiver of any such right or remedy or any other right or remedy hereunder.
h. HEADINGS. Headings contained in this Agreement are for convenience
only, are not a part of this Agreement, and do not in anyway interpret, limit or
amplify the scope, extent or intent of this Agreement or any of the provisions
hereof.
i. REGULATORY APPROVAL. Reseller warrants that the Services and the
Mall, when utilized with its own products, will comply with all applicable
industry and governmental standards and requirements. StoresOnline assumes no
responsibility or liability for these governmental and regulatory standards or
requirements, which liability and responsibility is assumed entirely by
Reseller. Upon request, StoresOnline will provide copies of regulatory
approvals to Reseller.
k. BRANDING. StoresOnline shall have the right to place a "POWERED BY
NETGATEWAY" or "POWERED BY STORESONLINE" byline in a prominent mutually agreed
upon location on each storefront site and on each Mall site.
l. PUBLICITY. StoresOnline (or its parent company, Netgateway, Inc.)
shall have the right to inform its customers and the public that StoresOnline
has entered into this Agreement with Reseller. Each party may use the other's
name or the name of its customers in marketing the Services and the development
of the Mall and may link to each other's websites, but neither party will
perform any actions which will harm the other's or its customers name and
reputation.
m. NOTICES. Any notice required in connection with this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or three business days after deposit in the United States mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party. All facsimile notices shall be confirmed by written
notice mailed, as provided above, within five (5) days of the date of the
facsimile is sent. Once confirmed, the notice shall be effective as of the date
of the facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date set forth in the Addendum.
STORESONLINE.COM, INC., A CALIFORNIA CORPORATION
NETGATEWAY, A NEVADA CORPORATION
By /s/ Don M. Corliss, Jr.
----------------------------------------------------
Name: Don Corliss
Their: President
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
WIRELESS ONE, INC.,
By /s/ Ernest D. Yates, Jr.
-------------------------------
Name: Ernest D. Yates, Jr.
Its: Chief Operating Officer
Address for Notices:
2506 Lakeland Drive
Jackson, MS 39208
Phone: (601) 936-1515
Fax: (601) 936-1517
Technical Contact:
Telephone:
E-mail Address:
<PAGE>
ADDENDUM
-----------------------------
THIS ADDENDUM MUST BE KEPT
CONFIDENTIAL IN ITS ENTIRETY.
-----------------------------
NAME OF RESELLER WIRELESS ONE, INC.
DATE OF AGREEMENT: MAY 20
STANDARD FEATURE SET
CATALOGS
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds and Ounces
- - Sending Methods: Internet, Fax/Mail and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: United States, Canadian Provinces and
World Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
- - Shipping Formula Functions: Minimum, Maximum and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable and Optional
- - Users and Passwords
CATEGORIES
- - Unlimited Categories
- - Full Description
- - Image
PRODUCTS
- - Base Item Number
- - Description: Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-Taxable Products
- - Weight
- - Category
- - Multiple Product Options (i.e., Color, Size)
- - Multiple Product Option Items (i.e., Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links to Related Items
- - Links to other URL's
- - Preview product pages
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
ORDERS
- - E-mail notification of new orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
STORESONLINE POINT OF SALE
- - Multiple Merchant Numbers
- - Automatic authorization of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
- - Freeze and Thaw Transactions
STORESONLINE HOSTING
- - Home Page Builder
- - Unique URL
- - 10 MB Free
- - Virtual hosting of existing domain names
- - Professionally designed templates
- - Customize your own templates
STORESONLINE SEARCH
- - Full Text Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
PRICING FOR STOREFRONT SERVICES:
Up to 100 Products:
Monthly Base Wholesale Price: Discount Threshold: [**REDACTED**]
Suggested Retail Price:
Reseller Retail Price: [**REDACTED**] Discount for Reseller:
Default Retail Price:
101 to 300 Products:
Monthly Base Wholesale Price: One Time Store Set-up Fee:
Suggested Retail Price:
Reseller Retail Price: [**REDACTED**] Up to 100 products
Default Retail Price: Base Wholesale Price:
Suggested Retail Price: [**REDACTED**]
301 to 1000 Products: Reseller Retail Price:
Monthly Base Wholesale Price: Additional products may be
Suggested Retail Price: included at $.50 per product
Reseller Retail Price: [**REDACTED**] Scanning:[**REDACTED**] per image
Default Retail Price: (first 10 images [**REDACTED**])
Tier: Reseller (Sells to end user customers or, with the prior written
consent of StoresOnline, to other Resellers)
<PAGE>
MALL DEVELOPMENT SERVICES AND PRICES
1. DEVELOPMENT. StoresOnline shall design and develop one on-line
Mall, to be branded around Reseller's name, brand and image. The Mall will be
capable of cataloguing stores independently or in conjunction with other malls
that belong to the StoresOnline mall network.
2. PRICING. Reseller shall pay a one-time development fee for the
Mall to be developed hereunder in the amount of $[**REDACTED**], which
amount shall be payable upon execution of this Agreement. Reseller shall
also pay StoresOnline a monthly maintenance fee equal to [**REDACTED**]
[**REDACTED**] for the duration of this Agreement. Such maintenance fee shall
include ongoing marketing support, including development of Mall content,
training of Reseller salespeople, development (but not printing) of Reseller
branded collateral material and periodic distribution of advertising spots to
promote the Mall and the Reseller branded StoresOnline service which will be
updated quarterly.
3. PROMOTION. Reseller will promote the Mall with a total of 1,000 30
second spots every month jointly developed by Reseller and StoresOnline in
all Systems in which it can insert advertising. In areas where Reseller does
not have the ability to perform ad insertions, it will instead promote the
Mall through "crawl space" listings. Reseller shall also promote the Mall and
storefront locations on its homepage with banner advertisements and links
provided by StoresOnline. Likewise, StoresOnline will promote the Mall and
Reseller StoresOnline solution across its network of various online malls.
4. PRESS RELEASE. It is the intention of both StoresOnline and
Reseller to issue a joint press release announcing this Agreement.
5. CUSTOM COMMERCE DEVELOPMENT. In the event that Reseller develops
leads which purchase custom eCommerce services from StoresOnlne, StoresOnline
shall compensate Reseller [**REDACTED**] percent of the initial development
fee due to StoresOnline in connection with such custom solution. Revenues
subject to this compensation must be pre-approved by StoresOnline. Examples
of this sort of revenue include, but are not limited to, the development of a
web site, mall or eCommerce presence for a customer of Reseller or one of its
agents.
6. RAPID MALL DEVELOPMENT. To further develop the Mall initially,
StoresOnline shall waive the Store Set-up Fee for the first 50 stores located
at the Mall.
<PAGE>
EXHIBIT "A"
STANDARD LICENSE AGREEMENT TERMS TO BE AGREED TO BY END-USER CUSTOMER OR OTHER
RESELLER
1. LICENSE. This License allows you to use any software associated
with the provision of the Services.
2. RESTRICTIONS. You may not use, copy, modify or transfer the
program, or any copy, modification or merged portion, in whole or in part,
except as expressly provided for in this License. If you transfer possession of
any copy, modification or merged portion of the program to another party, your
License is automatically terminated.
3. TERM. The License is effective until terminated. You may
terminate it at any other time by notifying Reseller of your intent to do so.
The License will also terminate upon the occurrence of certain events set forth
elsewhere in this Agreement. Upon such termination, you agree to destroy the
program together with all copies, modifications and merged portions in any form.
4. EXPORT LAW ASSURANCES. You agree that neither the pogrom nor any
direct product thereof is being or will be shipped, transferred or re-exported,
directly or indirectly, into any country prohibited by the US Export
Administration Act and the regulations thereunder or will be used for any
purpose prohibited by the Act.
5. LIMITED WARRANTY. The program is provided "AS IS" without
warranty of any kind, either expressed or implied, including, but not limited
to, the implied warranties of merchantability and fitness for a particular
purpose. The full text of the warranty is provided in the user manual.
6. LIMITED LIABILITY. In no event will StoresOnline be liable to you
for any damages, including any lost profits, lost savings or other incidental or
consequential damages arising out of the use of inability to use such program
even if StoresOnline has been advised of the possibility of such damages, or for
any claim by any other party.
7. GENERAL. If you are a Government end-user, this License conveys only
"RESTRICTED RIGHTS," and in its use, disclosure and duplication are subject to
Federal Acquisition Regulations, subparagraph (c)(1)(11) 52.227-7013. (See U.S.
Government End-User provisions in manual.) This License will be construed under
the laws of the State of California, except for that body of law dealing with
conflicts of law. If any provision of the License shall be held by a court of
competent jurisdiction to be contrary to law, that provisions shall be enforced
to the maximum extent permissible, and the remaining provisions of this License
shall remain in full force and effect.
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
NETGATEWAY
ELECTRONIC COMMERCE SERVICES AGREEMENT
THIS ELECTRONIC COMMERCE SERVICES AGREEMENT (this "AGREEMENT") is made
effective as of the Acceptance Date set forth in the initial eCommerce Services
Order Form (May __, 1999) accepted by Netgateway, a Nevada corporation
("NETGATEWAY"), and the subscriber identified below ("SUBSCRIBER").
PARTIES:
SUBSCRIBER NAME: RELIANT INNOVATIONS, INC., (A DIVISION OF MMDI, INC.)
ADDRESS: 1100 S. POWER LINE ROAD , SUITE 109
DEERFIELD BEACH, FL 33442
PHONE: (954) 246-8200
FAX: (954) 246-8201
NETGATEWAY
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562) 308-0010
Fax: (562) 308-0021
1. ELECTRONIC COMMERCE SERVICES.
1.1 ECOMMERCE SERVICES. Subject to the terms and conditions of this
Agreement, during the term of this Agreement, Netgateway will, through the
Netgateway Internet Commerce Center-TM- ("NETGATEWAY ICC"), provide to
Subscriber the services described in the eCommerce Services Order Form(s) (the
"ECOMMERCE SERVICES ORDER FORM(S)") accepted by Netgateway, or substantailly
similar services if such substantailly similar services would provide Subscriber
with substantially similar benefits (the "ECOMMERCE SERVICES"). All such
eCommerce Services Order Forms will be incorporated herein by this reference as
of the Acceptance Date set forth on each such form. Netgateway and Subscriber
have mutually agreed or will mutually agree upon the detailed final
specifications (the "SPECIFICATIONS") for the eCommerce Services and the
development timeline therefor, all of which are or will be set forth on the
attached initial eCommerce Services Order Form attached hereto as Exhibit "A",
and by this reference made a part hereof.
1.2 AVAILABILITY. ECommerce Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7) days a
week. Netgateway reserves the right upon reasonable notice to Subscriber to
limit or curtail holiday or weekend availability when necessary for system
upgrades, adjustments, maintenance or other operational considerations.
1.3 ENHANCEMENTS. General enhancements to existing eCommerce Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at no additional cost.
Any new features or services that may be developed by Netgateway during the
term of this Agreement which Netgateway intends to offer to subscribers on a
limited or optional basis may, at Netgateway's option, and subject to
Subscriber's acceptance, be made available to Subscriber at Netgateway's
then-current prices for such new features or services. Enhancements to
existing eCommerce Services requested by Subscriber that benefit only
Subscriber at the time such enhancements are put into service shall be billed
to Subscriber at Netgateway's standard rates for programming. All
enhancements to the eCommerce Services, and any new features or services
introduced by Netgateway, shall remain the exclusive proprietary property of
Netgateway.
1.4 TRAINING. At no cost to Subscriber, Netgateway shall provide such
onsite training and other assistance, as Netgateway deems necessary to assure
that Subscriber's personnel are able to make effective use of the eCommerce
Services. On-site training shall take place at such times and places as are
mutually agreeable to the parties hereto.
1.5 SUBSCRIBER DATA.
(a) SUBSCRIBER DATA. Subscriber will timely supply Netgateway, in a form
acceptable to Netgateway, with all data necessary for Netgateway to perform the
ongoing services to be provided hereunder. It is the sole responsibility of
Subscriber to insure the completeness and accuracy of such data.
(B) CONFIDENTIALITY. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber are confidential and shall
take reasonable steps to protect the confidentiality of such records, data,
files and other materials. Netgateway will provide reasonable security
safeguards to limit access to Subscriber's files and records to Subscriber and
other authorized parties.
(c) PROTECTION OF SUBSCRIBER FILES. Netgateway will take reasonable steps
to protect against the loss or alteration of Subscriber's files, records and
data retained by Netgateway, but Subscriber recognizes that events beyond the
control of Netgateway may cause such loss or alteration. Netgateway will
maintain backup file(s) containing all the data, files and records related to
Subscriber. Subscriber's file(s), records and data shall, at no cost to
Subscriber, be released to Subscriber on an occurrence that renders Netgateway
unable to perform hereunder, or upon the termination of this Agreement as
provided herein.
(d) OWNERSHIP OF DATA. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber and its customers are the
exclusive property of the Subscriber.
2. FEES AND BILLING.
2.1 FEES. Subscriber will pay all fees and amounts in accordance with the
eCommerce Service Provider Forms.
2.2 BILLING COMMENCEMENT. The Initial Development Fee shall be due and
payable in accordance with the terms set forth on the eCommerce Services Order
Form. Billing for eCommerce Services indicated in the eCommerce Services Order
Form (including the eCommerce Rate, Fees Per Hit, Banner Advertising Revenue and
Click Through Revenue, as applicable) other than the Initial Development Fee,
shall commence on the "OPERATIONAL DATE" indicated in the eCommerce Services
Order Form. In the event that Subscriber orders other eCommerce Services in
addition to those listed in the initial eCommerce Services Order Form, billing
for such services shall commence on the date Netgateway first provides such
additional eCommerce Services to Subscriber or as otherwise agreed to by
Subscriber and Netgateway in the applicable eCommerce Services Order Form.
2.3 BILLING AND PAYMENT TERMS. All amounts due under this Agreement for
eCommerce Services indicated in the eCommerce Services Order Form shall be
payable in accordance with the Billing and Payment Terms set forth on Exhibit
"B" annexed hereto, which by this reference is made a part hereof.
2.4 TAXES, UTILITIES AND EXCLUSIONS. All charges shall be exclusive of
any federal, state or local sales, use, excise, AD VALOREM or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of the
eCommerce Services provided hereunder. Any such taxes shall be paid by
Subscriber or by Netgateway for Subscriber's account, in which case Subscriber
shall reimburse Netgateway for amounts so paid. Netgateway shall provide
burstible at 1 megabit per second capacity bandwith for Subscriber's website at
no additional charge. Should Subscriber need additional bandwidth, Netgateway
shall provide or make arrangements to provide such additional bandwidth and
invoice Subscriber for such excess bandwidth and/or use beyond a 1 megabit per
second burstible line. Netgateway will provide traffic reports to Subscriber
with respect to burstible capacity. Netgateway is not responsible for providing
connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 COMPLIANCE WITH LAWS AND RULES AND REGULATIONS. Subscriber agrees that
Subscriber will comply at all times with all applicable laws and regulations and
Netgateway's general rules and regulations relating to its provision of
eCommerce Services, currently included herein as Section 10, which may be
updated and provided by Netgateway to Subscriber from time to time ("RULES AND
REGULATIONS"). Subscriber acknowledges that Netgateway exercises no control
whatsoever over the content contained in or passing through the Subscriber's web
site, storefront or mall ("ECOMMERCE CENTERS"), and that it is the sole
responsibility of Subscriber to ensure that the information it transmits and
receives complies with all applicable laws and regulations.
3.2 ACCESS AND SECURITY. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the eCommerce Services),
and third party claims that may result from its use of, or access to, the
Netgateway Internet Commerce Center-TM-, including, but not limited to, any
unauthorized use or any access devices provided by Netgateway hereunder.
[**REDACTED**]
3.4 INSURANCE.
(a) MINIMUM LEVELS. Subscriber will keep in full force and effect during
the term of this Agreement: (i) comprehensive general liability insurance in an
amount not less than $5 million per occurrence for bodily injury and property
damage; (ii) employer's liability insurance in an amount not less than $1
million per occurrence; and (iii) workers' compensation insurance in an amount
not less than that required by applicable law. Subscriber also agrees that it
will be solely responsible for ensuring that its agents (including contractors
and subcontractors) maintain, other insurance at levels no less than those
required by applicable law and customary in Subscriber's industry.
(b) CERTIFICATES OF INSURANCE. Prior to the Operational Date, Subscriber
will furnish Netgateway with certificates of insurance which evidence the
minimum levels of insurance set forth above, and will notify Netgateway in
writing in the event that any such insurance policies are cancelled.
(c) NAMING NETGATEWAY AS AN ADDITIONAL INSURED. Subscriber agrees that
prior to the Operational Date, Subscriber will cause its insurance provider(s)
to name Netgateway as an additional insured and notify Netgateway in writing of
the effective date thereof.
<PAGE>
4. CONFIDENTIAL INFORMATION.
4.1 CONFIDENTIAL INFORMATION. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology and products, including the
terms and conditions of this Agreement ("CONFIDENTIAL INFORMATION").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors on a need to know basis), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such Confidential Information.
4.2 EXCEPTIONS. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 WARRANTIES BY SUBSCRIBER.
(A) SUBSCRIBER'S BUSINESS. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data and
information used by Subscriber in connection with this Agreement as well as
Subscriber's and its permitted customers' and users' use of the eCommerce
Services (collectively, "SUBSCRIBER'S BUSINESS") does not, as of the Operational
Date, and will not during the term of this Agreement, operate in any manner that
would violate any applicable laws or regulations.
(ii) Subscriber owns or has the right to use all material
contained in the Subscriber's web site, including all text, graphics, sound,
video, programming, scripts and applets; and
(iii) The use, reproduction, distribution and transmission of
the web site, or any information or materials contained in it does not: (A)
infringe or misappropriate any copyright, patent, trademark, trade secret or
any other proprietary rights of a third party; or (B) constitute false
advertising, unfair competition, defamation, an invasion of privacy or
violate a right of publicity.
(b) RULES AND REGULATIONS. Subscriber has read the Rules and Regulations
(Section 10 below) and represents and warrants that Subscriber and Subscriber's
Business are currently in full compliance with the Rules and Regulations, and
will remain so at all times during the term of this Agreement.
(c) BREACH OF WARRANTIES. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any other
remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent any
harm to Netgateway or its business.
5.2 WARRANTIES AND DISCLAIMERS BY NETGATEWAY.
(a) NO OTHER WARRANTY. THE ECOMMERCE SERVICES ARE PROVIDED ON AN "AS IS"
BASIS, AND SUBSCRIBER'S USE OF THE ECOMMERCE SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE ECOMMERCE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE OR COMPLETELY SECURE.
(b) DISCLAIMER OF ACTIONS CAUSED BY AND/OR UNDER THE CONTROL OF THIRD
PARTIES. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTER AND OTHER PORTIONS OF THE INTERNET. SUCH
FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR
CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE
THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S SUBSCRIBERS'
CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED.
ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT
DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, NETGATEWAY CANNOT GUARANTEE
THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 EXCLUSIONS. IN NO EVENT WILL NETGATEWAY BE LIABLE TO SUBSCRIBER, ANY
REPRESENTATIVE OR ANY THIRD PARTY FOR ANY CLAIMS ARISING OUT OF OR RELATED TO
THIS AGREEMENT, SUBSCRIBER'S BUSINESS OR OTHERWISE, AND ANY LOST REVENUE, LOST
PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL,
PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF DATA, OR INTERRUPTION OR
LOSS OF USE OF SERVICE OR SUBSCRIBER'S BUSINESS, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.2 LIMITATIONS. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND
AGENTS SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS OR
DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF
SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS,
STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH
NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS AGAINST WHOM
LIABILITY IS SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT
OR INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS,
OMISSIONS OR ERRORS IN THE TRANSMISSION OR DELIVERY OF ECOMMERCE SERVICES, OR
ANY DATA PROVIDED AS A PART OF THE ECOMMERCE SERVICES PURSUANT TO THIS
AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF NETGATEWAY. IN ADDITION, IN NO EVENT SHALL NETGATEWAY BE LIABLE
TO SUBSCRIBER OR TO ANY THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES WHICH SUBSCRIBER OR SUCH THIRD PARTY MAY INCUR
OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR
UTILIZING THE NETGATEWAY ECOMMERCE SERVICES, REGARDLESS OF WHETHER NETGATEWAY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE
CAUSED, IN WHOLE OR IN PART, BY THE NEGLIGENCE OF NETGATEWAY.
6.3 MAXIMUM LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, NETGATEWAY'S MAXIMUM AGGREGATE LIABILITY TO SUBSCRIBER RELATED TO
OR IN CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID
BY SUBSCRIBER TO NETGATEWAY HEREUNDER FOR THE PERIOD CONSISTING OF THE PRIOR
[**REDACTED**].
6.4 TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES,
SUCCESSORS OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED
BREACH THEREOF, SHALL BE COMMENCED WITHIN [**REDACTED**] OF THE FIRST
OCCURRENCE GIVING RISE TO SUCH CLAIM OR BE FOREVER BARRED. THIS PROVISION
DOES NOT MODIFY OR OTHERWISE AFFECT THE LIMITATION OF NETGATEWAY'S LIABILITY
SET FORTH IN SECTION 6 OR ELSEWHERE IN THIS AGREEMENT.
6.5 SUBSCRIBER'S INSURANCE. Subscriber agrees that it will not pursue any
claims against Netgateway for any liability Netgateway may have under or
relating to this Agreement until Subscriber first makes claims against
Subscriber's insurance provider(s) and such insurance provider(s) finally
resolve(s) such claims.
6.6 BASIS OF THE BARGAIN; FAILURE OF ESSENTIAL PURPOSE. Subscriber
acknowledges that Netgateway has set its prices and entered into this Agreement
in reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 NETGATEWAY'S INDEMNIFICATION OF SUBSCRIBER. Netgateway will
indemnify, defend and hold Subscriber harmless from and against any and all
costs, liabilities, losses and expenses (including, but not limited to,
reasonable attorneys' fees) (collectively, "LOSSES") resulting from any claim,
suit, action or proceeding (each, an "ACTION") brought against Subscriber
alleging the infringement of any third party registered U.S. copyright or issued
U.S. patent resulting from the provision of eCommerce Services pursuant to this
Agreement (but excluding any infringement contributorily caused by Subscriber's
Business).
7.2 SUBSCRIBER'S INDEMNIFICATION OF NETGATEWAY. Subscriber will
indemnify, defend and hold Netgateway, its affiliates and customers harmless
from and against any and all Losses resulting from or arising out of
Subscriber's breach of any provision of this Agreement or any Action brought
against Netgateway, its directors, employees, affiliates or Subscribers alleging
with respect to the Subscriber's Business: (a) infringement or misappropriation
of any intellectual property rights; (b) defamation, libel, slander, obscenity,
pornography or violation of the rights of privacy or publicity; (c) spamming, or
any other offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or, (d) any violation of any other applicable law or regulation.
7.3 NOTICE. Each party will provide the other party, prompt written
notice of the existence of any such indemnifiable event of which it becomes
aware, and an opportunity to participate in the defense thereof.
8. DISPUTE RESOLUTION.
8.1 PROCEDURES. It is the intent of the parties that all disputes arising
under this Agreement be resolved expeditiously, amicably, and at the level
within each party's organization that is most knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in this
Paragraph 8 are not intended to supplant the routine handling of inquiries and
complaints through informal contact with customer service representatives or
other designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "DISPUTE" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as provided in paragraph 8.5 below, may be submitted to
arbitration, the parties shall first follow the informal and escalating
procedures set forth below.
<PAGE>
(a) The complaining party's representative will notify the other party's
representative in writing of the dispute, and the non-complaining party will
exercise good faith efforts to resolve the matter as expeditiously as possible.
(b) In the event that such matter remains unresolved thirty (30) days
after the delivery of the complainant party's written notice, a senior
representative of each party shall meet or confer within ten (10) business days
of a request for such a meeting or conference by either party to resolve such
matter.
(c) In the event that the meeting or conference specified in (b) above
does not resolve such matter, the senior officer of each party shall meet or
confer within ten (10) business days of the request for such a meeting or
conference by either party to discuss and agree upon a mutually satisfactory
resolution of such matter.
(d) If the parties are unable to reach a resolution of the dispute after
following the above procedure, or if either party fails to participate when
requested, the parties may proceed in accordance with paragraph 8.2 below.
8.2 BINDING ARBITRATION. Except as provided in paragraph 8.5 below, any
dispute arising under this Agreement shall, after utilizing the procedures in
paragraph 8.1, be resolved by final and binding arbitration in Los Angeles,
California, before a single arbitrator selected by, and in accordance with, the
rules of commercial arbitration of the American Arbitration Association or as
otherwise provided in Paragraph 11.6. Each party shall bear its own costs in
the arbitration, including reasonable attorneys' fees, and each party shall bear
one-half of the cost of the arbitrator.
8.3 ARBITRATOR'S AUTHORITY. The arbitrator shall have the authority to
award such damages as are not prohibited by this Agreement and may, in addition
and in a proper case, declare rights and order specific performance, but only in
accordance with the terms of this Agreement.
8.4 ENFORCEMENT OF ARBITRATOR'S AWARD. Any party may apply to a court of
general jurisdiction to enforce an arbitrator's award, and if enforcement is
ordered, the party against which the order is issued shall pay the costs and
expenses of the other party in obtaining such order, including reasonable
attorneys' fees.
8.5 ACCESS TO COURTS. Notwithstanding the provisions of paragraphs 8.1
and 8.2 above, any action by Netgateway to enforce its rights under Paragraphs
10.1 or 10.3 of this Agreement or to enjoin any infringement of the same by
Subscriber may, at Netgateway's election, be commenced in the state or federal
courts of Los Angeles, California, and Subscriber consents to personal
jurisdiction and venue in such courts for such actions.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement will be effective on the date first above
written and will terminate thirty (30) months ("INITIAL TERM") from the date
Subscriber begins processing live data through Netgateway ICC-TM-, unless
earlier terminated according to the provisions of this Section 9. This
Agreement will automatically renew for an additional term of three (3) years
unless a party hereto elects not to so renew and notifies the other party in
writing of such election by a date, which is six (6) months prior to the
lapse of the Initial Term.
9.2 TERMINATION. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days after
receipt of written notice of the same, except in the case of failure to pay
fees, which failure must be cured within five (5) days after receipt of written
notice from Netgateway; (ii) the other party becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation or composition for the benefit of creditors; or (iii)
the other party becomes the subject of an involuntary petition in bankruptcy or
any involuntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within sixty (60) days of filing.
9.3 NO LIABILITY FOR TERMINATION. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with its
terms.
9.4 EFFECT OF TERMINATION. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway shall immediately cease providing
eCommerce Services; (b) any and all payment obligations of Subscriber under this
Agreement shall become due immediately; and (c) within thirty (30) days after
such expiration or termination, each party shall return all Confidential
Information of the other party in its possession at the time of expiration or
termination and shall not make or retain any copies of such Confidential
Information, except as required to comply with any applicable legal or
accounting record keeping requirements.
9.5 SURVIVAL. The following provisions shall survive any expiration or
termination of the Agreement: Sections 2, 3, 4, 5, 6, 7, 8, 9 and 10.
10. USE OF ECOMMERCE SERVICES -- RULES AND REGULATIONS.
10.1 PROPRIETARY SYSTEMS. Subscriber acknowledges that the software
systems utilized by Netgateway in the provision of eCommerce Services hereunder,
including the Netgateway ICC-TM-, all enhancements thereto and all screens and
formats used in connection therewith, are the exclusive proprietary property of
Netgateway, and Subscriber shall not publish, disclose, display, provide access
to or otherwise make available any Netgateway eCommerce software or products
thereof, or any screens, formats, reports or printouts used, provided, produced
or supplied from or in connection therewith, to any person or entity other than
an employee of Subscriber without the prior written consent of, and on terms
acceptable to, Netgateway, which consent shall not be unreasonably withheld;
PROVIDED, HOWEVER, that Subscriber may disclose to a governmental or regulatory
agency or to customers of Subscriber any information expressly prepared and
acknowledged in writing by Netgateway as having been prepared for disclosure to
such governmental or regulatory agency or to such customers. Neither party
shall disclose Subscriber's use of eCommerce Services in any advertising or
promotional materials without the prior written consent to such use, and
approval of such materials, by the other.
10.2 USE OF SERVICES PERSONAL TO SUBSCRIBER. Subscriber agrees that it
will use the services provided hereunder only in connection with its eCommerce
business, and it will not, without the express written permission of Netgateway,
sell, lease or otherwise provide or make available eCommerce Services to any
third party.
10.3 SURVIVAL OF OBLIGATIONS. The obligations of this Section 10 shall
survive termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway' software or copies
thereof, or the unauthorized use of eCommerce Services would cause irreparable
harm to Netgateway for which there is no adequate remedy at law. Subscriber
therefore agrees that in the event of such unauthorized disclosure or use,
Netgateway may, at its discretion and at Subscriber's expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Netgateway, in its reasonable, good faith judgment, determines that
there is a material risk of such unauthorized disclosure or use, it may demand
immediate assurances, satisfactory to Netgateway, that there will be no such
unauthorized disclosure or use. In the absence of such assurance, Netgateway
may immediately terminate this Agreement and take such other actions as it deems
necessary. The rights of Netgateway hereunder are in addition to any other
remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 FORCE MAJEURE. Except for the obligation to pay money, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including act of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet, provided that the delaying party:
(a) gives the other party prompt notice of such cause, and (b) uses its
reasonable commercial efforts to correct promptly such failure or delay in
performance.
11.2 NO LEASE. This Agreement is a services agreement and is not intended
to, and will not constitute, a lease of any real or personal property.
Subscriber acknowledges and agrees that: (i) it has been granted only a license
to use Netgateway's ICC-TM- and any equipment provided by Netgateway in
accordance with this Agreement, (ii) Subscriber has not been granted any real
property interest in the Netgateway's ICC-TM-, and (iii) Subscriber has no
rights as a tenant or otherwise under any real property or landlord/tenant laws,
regulations or ordinances.
11.3 MARKETING. Subscriber agrees that Netgateway may refer to Subscriber
by trade name and trademark, and may briefly describe Subscriber's business, in
Netgateway's marketing materials and web site. Subscriber hereby grants
Netgateway a license to use any Subscriber trade names and trademarks solely in
connection with the rights granted to Netgateway pursuant to this Section 11.3.
11.4 GOVERNMENT REGULATIONS. Subscriber will not export, re-export,
transfer or make available, whether directly or indirectly, any regulated item
or information to anyone outside the U.S. in connection with this Agreement
without first complying with all export control laws and regulations which may
be imposed by the U.S. Government and any country or organization of nations
within whose jurisdiction Subscriber operates or does business.
11.5 NON-SOLICITATION. During the period beginning on the Operational
Data and ending on the first anniversary of the termination or expiration of
this Agreement in accordance with its terms, Subscriber agrees that it will
not, and will ensure that its affiliates do not, directly or indirectly,
solicit or attempt to solicit for employment any persons employed by
Netgateway during such period.
11.6 GOVERNING LAW; DISPUTE RESOLUTION, SEVERABILITY; WAIVER. This
Agreement is made under and will be governed by and construed in accordance with
the laws of the State of California (without regard to that body of law
controlling conflicts of law) and specifically excluding from application to
this Agreement that law known as the United Nations Convention on the
International Sale of Goods. Any dispute relating to the terms, interpretation
or performance of this Agreement (other than claims for preliminary injunctive
relief or other pre-judgment remedies) will be resolved at the request of either
party through binding arbitration. Arbitration will be conducted in Los Angeles
County, California, under the rules and procedures of the Judicial Arbitration
and Mediation Society ("JAMS"). The parties will request that JAMS appoint a
single arbitrator possessing knowledge of online services agreements; PROVIDED,
HOWEVER, the arbitration will proceed even if such a person is unavailable. In
the event any provision of this Agreement is held by a tribunal of competent
jurisdiction to be contrary to the law, the remaining provisions of this
Agreement will remain in full force and effect. The waiver of any breach or
default of this Agreement will not constitute a waiver of any subsequent breach
or default, and will not act to amend or negate the rights of the waiving party.
<PAGE>
11.7 ASSIGNMENT; NOTICES. Subscriber may not assign its rights or
delegate its duties under this Agreement either in whole or in part without the
prior written consent of Netgateway, except that Subscriber may assign this
Agreement in whole as part of a corporate reorganization, consolidation, merger
or sale of substantially all of its assets. Any attempted assignment or
delegation without such consent will be void. Netgateway may assign this
Agreement in whole or part. This Agreement will bind and inure to the benefit of
each party's successors and permitted assigns. Any notice or communication
required or permitted to be given hereunder may be delivered by hand, deposited
with an overnight courier, sent by confirmed facsimile, or mailed by registered
or certified mail, return receipt requested, postage prepaid, in each case to
the address of the receiving party indicated on the signature page hereof, or at
such other address as may hereafter be furnished in writing by either party
hereto to the other. Such notice will be deemed to have been given as of the
date it is delivered, mailed or sent, whichever is earlier.
11.8 RELATIONSHIP OF PARTIES. Netgateway and Subscriber are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Netgateway
and Subscriber. Neither Netgateway nor Subscriber will have the power to bind
the other or incur obligations on the other's behalf without the other's prior
written consent, except as otherwise expressly provided herein.
11.9 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, including all
documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the foregoing
and all documents incorporated therein and agree and accept such terms effective
as of the date first above written.
SUBSCRIBER
Signature: /s/ Donald Resnick Signature:
------------------------ -----------------------
Print Name: Donald Resnick Print Name:
------------------------ -----------------------
Title: CEO 6/6/99
------------------------
NETGATEWAY
Signature: /s/ Donald M. Corlss Jr. Signature:
------------------------ -----------------------
Print Name: Donald M. Corliss Jr. 6/11/99 Print Name:
------------------------ -----------------------
Title: PRESIDENT
------------------------
<PAGE>
EXHIBIT "A"
ELECTRONIC COMMERCE SERVICES ORDER FORM
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
Subcriber Name: Reliant Innovations, Inc.
Form Date: June 6, 1999
Form No.: 001
GENERAL INFORMATION:
1. By submitting this eCommerce Services Order Form ("FORM") to Netgateway,
Subscriber hereby places an order for the eCommerce Services described
herein pursuant to the terms and conditions of the Electronic Commerce
Services Agreement between Subscriber and Netgateway prefixed hereto (the
"ECS AGREEMENT").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first begins
to process transactions through the Netgateway Internet Commerce Center,
whichever occurs first.
3. Netgateway will provide the eCommerce Services pursuant to the terms and
conditions of the ECS Agreement, which incorporates this Form. The terms
of this Form supersede, and by accepting this Form, Netgateway hereby
rejects, any conflicting or additional terms provided by Subscriber in
connection with Netgateway's provision of the eCommerce Services. If there
is a conflict between this Form and any other Form provided by Customer and
accepted by Subscriber, the Form with the latest date shall control.
4. Netgateway will not be bound by or required to provide eCommerce Services
pursuant to this Form or the ECS Agreement until each is signed by an
authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Submitted By: /s/ Donald Resnick Operational Date: 8-31-99
-------------------- ----------------------
(AUTHORIZED SIGNATURE)
Print Name: Donald Resnick
--------------------
Title: CEO 6/6/99
--------------------
NETGATEWAY ACCEPTANCE
/s/ Donald M. Corliss Jr. Date: 6-11-99
- ----------------------------------- --------------------------------
(AUTHORIZED SIGNATURE: Donald M. Corliss Jr.
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
-------------------------
THIS ENTIRE ORDER FORM
MUST BE KEPT CONFIDENTIAL
-------------------------
SUBSCRIBER NAME: RELIANT INNOVATIONS, INC.
FORM DATE: June 6, 1999
FORM NO.: 001
TERMS:
1. DEVELOPMENT FEE. The initial development fee for Phases I, II and III
shall be $30,000, and shall be due and payable in full upon
submission of this Order Form.
2. PHASE SPECIFICATIONS. Phase specifications shall be as determined
pursuant to the mutual agreement of the parties.
3. ICC COMMERCE RATE. Netgateway transaction fees shall be based upon the
following schedule:
QUARTERLY GROSS SALES REVENUE TRANSACTION FEE RATE
----------------------------- --------------------
$ 0 TO $1,000,000 [**REDACTED**]
1,000,000 TO 2,000,000
2,000,000 and over
For purposes hereof, sales revenue shall mean all revenues generated
from transactions processed through the Netgateway Internet Commerce
Center which are related to Subscriber.
4. FEE PER HIT. Netgateway to receive $.0015 per hit (as that term
is customarily understood in the industry), up to a maximum of
$1,500.00 per month.
5. BANNER ADVERTISING REVENUE. Netgateway to receive [**REDACTED**] of
banner advertising revenue from ads placed by Subscriber and [**REDACTED**]
of banner advertising revenue from ads placed by Netgateway on Subscriber's
web site or mall. Netgateway reserves the right to increase the
[**REDACTED**] fee for banner advertisements placed by Subscriber to a
mutually agreed upon level in the event that the cost of maintaining such
ads, including a small profit margin, increases beyond [**REDACTED**] of
the total revenue generated by such ads.
6. CLICK-THROUGH REVENUE. Netgateway to receive [**REDACTED**] of the
click through revenue generated from advertisers placed by Subscriber
and [**REDACTED**] of click through revenue from advertisers placed by
Netgateway on Subscriber's web site or mall. Netgateway reserves the right
to increase the [**REDACTED**] fee for click through revenue generated by
advertisers placed
<PAGE>
by Subscriber to a mutually agreed upon level in the event that the cost
of maintaining such ads, including a small profit margin, increases
beyond [**REDACTED**] of the total revenue generated by such ads.
7. Development Timeline:
- ECS Agreement to be signed by May 31, 1999
- Design of Specifications to be completed by June 4, 1999
- Phase I Implementation by August 31, 1999
8. Description of Phases. See attached Schedule 1.
9. One of the parties are public companies and can be affected by the
manner or content of public announcements concerning this relationship.
Neither party shall make any public announcement of this Agreement or of
the relationship they have entered into without the prior written consent
of the other.
SUBSCRIBER'S INITIALS DR
-----------
<PAGE>
SCHEDULE 1
DESCRIPTION OF PHASES
PHASE I
The specifications for Phase I will be determined by the mutual
agreement Netgateway and Reliant Innovations, but shall in general include a
web site containing company information and shall be capable of eCommerce
transactions to be fulfilled by Reliant Innovations.
PHASE II
The specifications for Phase II will be determined by the mutual
agreement of Netgateway and Reliant Innovations, but shall generally increase
the feature set of the web site described in Phase I. These additional
features will include connectivity to a primary and secondary fulfillment
partner of Reliant Innovations. The Phase II site will have the capability to
transmit and receive transactions and information surround sales, order
placement, order tracking, shipping confirmations, product pricing and
product availability to and from Reliant Innovations primary and secondary
fulfillment partners.
PHASE II
The specifications for Phase III will be determined by the mutual
agreement of Netgateway and Reliant Innovations, but shall generally include
a program to increase the feature set of the web site described in Phases I
and II. These additional features will include the ability to host 'virtual
auctions' on Reliant Innovations' web site for reseller and end user clients.
SUBSCRIBER'S INITIALS DR
-----------
<PAGE>
EXHIBIT "B"
BILLING AND PAYMENT TERMS
The Initial Development Fee hereunder shall be due and payable in full upon
execution of this Agreement.
Netgateway shall invoice Subscriber monthly in advance of the provision of
Internet Commerce Services, and payment of such fees shall be due and payable
in full within thirty (30) days of the date of each Netgateway invoice. Late
payments hereunder shall accrue interest at a rate of one and one-half
percent (1 1/2%) per month, or the highest rate allowed by applicable law,
whichever is lower. If, in its reasonable judgment, Netgateway determines
that Subscriber is not creditworthy or is otherwise not financially secure,
Netgateway may, upon prior written notice to Subscriber, modify the payment
terms to require full payment before the provision of eCommerce Services or
other assurances to secure Subscriber's payment obligations hereunder.
All payments made pursuant to this Agreement shall be made in U.S. dollars.
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
STORESONLINE.COM
CABLE RESELLER AND MALL AGREEMENT
MediaOne of Colorado, Inc.
THIS CABLE RESELLER AND MALL AGREEMENT (the "AGREEMENT") is made and
entered into as of the date set forth on the Addendum attached hereto and by
this reference made a part hereof (the "ADDENDUM"), between and among
STORESONLINE.COM, INC., a California corporation, and NETGATEWAY, a Nevada
corporation, on the one hand (collectively, "STORESONLINE"), and the Reseller
identified on the Addendum, on the other hand ("RESELLER").
R E C I T A L S
- - - - - - - -
A. Reseller is an established business entity, engaged in the business
of providing high speed Internet access, data transmission and cable television
programming services throughout the United States.
B. StoresOnline is a provider of turnkey electronic commerce services
which: (i) develops, manages, maintains and hosts online electronic shopping
malls and (ii) owns, operates and maintains an Internet storefront-building
services package comprised of certain services delivered through StoresOnline's
proprietary software, the standard features of which are more particularly
described on the Addendum (collectively, the "SERVICES").
C. The Services are delivered through the Internet and may be made
available through a private, branded electronic exchange to be developed for
Reseller.
D. StoresOnline desires to: (i) sell and license the Services to
Reseller for Reseller's resale and sublicense to end-user customers or, with the
written permission of StoresOnline, to other resellers and (ii) develop, manage,
maintain and host one or more on-line malls to be branded around Reseller's
name, brand and image (each, a "Mall" and collectively, the "Malls").
E. Reseller desires to purchase and license the Services for resale to
end-user customers and shall use its unique resources to promote the Services as
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. SERVICES.
a. SCOPE OF AGREEMENT. This Agreement covers (i) the purchase,
licensing, promotion and sale of the Services and (ii) the design and
development of the Malls, all in accordance with the terms and conditions set
forth herein and on the Addendum.
b. LICENSE GRANT; SALE OF SERVICES. StoresOnline grants to
Reseller, subject to the terms and conditions of this Agreement, the
non-exclusive right and license to resell and sublicense (in the case of
software products), the Services to Reseller's end-user customers or, with
the written permission of StoresOnline, to other resellers. In the case of
software products, Reseller acknowledges that such software is and will
remain proprietary to StoresOnline, is copyrighted and that Reseller acquires
no right, title or interest in or to any such software by this Agreement.
Reseller agrees to sublicense the Services hereunder pursuant to the Standard
License Agreement Terms set forth on Exhibit A hereto, and to cause each of
its customers or other resellers to sublicense the Services pursuant to such
terms, which terms, in the case of a reseller, shall be accepted upon store
set-up and, in the case of an end-user customer, shall be accepted as part of
the storefront registration process described below.
c. PRODUCT NAME. It is expressly agreed that the ownership and all
right, title and interest in and to the Services and any trademark, trade name,
patent or copyright relating to the Services is and will remain vested solely in
StoresOnline; PROVIDED, HOWEVER, that as permitted by this Agreement, Reseller
may use any existing or future trademark, trade name, patent or copyright
relating to the Malls and/or the Services, such use to be limited to promoting,
selling, installing or maintaining the Malls and/or the Services; and PROVIDED,
FURTHER, that as permitted by this Agreement, the Services may be branded around
Reseller's name, brand and image. Reseller shall use commercially reasonable
efforts during the term of this Agreement to protect StoresOnline's trademarks,
trade names, patents and copyrights, but shall not be required to instigate
legal action against third parties for any infringement thereof. Reseller shall
notify StoresOnline of any infringement as soon as practicable after becoming
aware of any such infringement. Reseller shall not use, directly or indirectly,
in whole or in part, StoresOnline's name or any other trade name or trademark
that is owned or used by StoresOnline in connection with any product other than
StoresOnline's products, without the prior written consent of StoresOnline.
d. RESELLER BRANDING. It is expressly understood and agreed
that the ownership and all right, title and interest in and to any trademark,
trade name, patent or copyright owned by Reseller or any end-user customer
hereunder is and will remain vested solely in Reseller or such end-user
customer, as applicable; PROVIDED, HOWEVER, that as permitted by this
Agreement, StoresOnline may use any existing or future trademark, trade name,
patent or copyright owned by Reseller or such end-user customers, such use to
be limited to developing, managing, maintaining and hosting the Malls and/or
the Services.
e. MALL DEVELOPMENT. StoresOnline shall develop, manage,
maintain and host the Malls in accordance with the terms and conditions set
forth herein and on the Addendum. The Malls shall be branded around
Reseller's name, brand and image and shall link to the Reseller's branded
StoresOnline solution. The Malls will include appropriate URL addresses,
four to six featured products and stores from various Reseller and third
party advertisers, additional Reseller and non-Reseller advertiser stores and
products catalogued with text references, and links to top-tier eCommerce
sites. The Malls will also include an appropriate search engine, commerce
functionality, banner and other appropriate advertising space and such other
features as the parties shall mutually agree. The Malls will be capable of
cataloguing stores independently or in conjunction with all other Malls
developed hereunder, if any, as well as other malls which belong to the
StoresOnline electronic mall network. Reseller agrees and understands that
the storefronts of its end-user customers may be placed in one or more
electronic malls developed and/or operated by StoresOnline (in addition to
the Malls).
e. RESELLER ONLINE STORE. StoresOnline shall develop, manage,
maintain and host an online store for Reseller linked to the Malls that may
contain up to fifty products (the "Online Store"). StoresOnline shall update
the Online Store content on a monthly basis as reasonably instructed by
Reseller and as is deemed mutually reasonable by both parties. The Online
Store shall be accessible and fully functional within ten (10) business days
of the date on which Reseller provides StoresOnline with all of the
information required by StoresOnline to complete the Online Store, including
but not limited to, all initial content for the Online Store.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as of
September 1, 1999 and continue for an initial term of two (2) years. Such
term may be extended for additional one-year terms thereafter with the
affirmative written consent of the parties hereto, such consent to be given
not less than sixty (60) days prior to the expiration of the applicable term.
a. Notwithstanding the foregoing, this Agreement may be
terminated in accordance with the provisions of Section 10.
b. Termination of this Agreement shall not relieve either party
of any obligations incurred prior to termination, including outstanding
delivery and payment obligations and other contractual commitments herein or
mutually agreed to from time to time by the parties in writing. The
obligations set forth in Sections 3d, 6b, 8, 10a, 12c, 12e, 12f and 12h are
expressly intended to survive termination of this Agreement. Upon
termination of this Agreement, each party (i) shall promptly return to the
other party all Proprietary Information (as hereinafter defined) as provided
in Section 12.e hereof; (ii) render a final accounting to the other party of
all amounts due and owing hereunder, and any requisite payments in connection
therewith, within ninety (90) days of such termination; and (iii) shall
cooperate with and provide reasonable assistance to the other party during a
transition period of ninety (90) days.
3. PRICES AND TAXES.
a. PRICES FOR SERVICES. Pursuant to the terms of this Agreement,
StoresOnline shall be entitled to receive from Reseller: (i) the one-time Store
Set-up Price set forth on the Addendum for each of Reseller's end-user customers
which establishes a storefront pursuant hereto; and (ii) the applicable Monthly
Base Wholesale Price set forth on the Addendum for each active storefront
designated as such by Reseller.
b. [RESERVED].
<PAGE>
c. RETAIL PRICES FOR SERVICES. On or before the first day of
each month, Reseller shall provide StoresOnline with a list of the Reseller
prices charged for each class of Accounts or for each Account (as hereinafter
defined).
d. PRICES FOR MALL DEVELOPMENT; MALL REVENUE SPLIT. All prices
for Mall design, development and operation provided hereunder shall be as set
forth on the Addendum. It is anticipated that the Malls will generate
multiple revenue streams. Reseller and StoresOnline shall split the net
revenue generated from all such revenue sources on a [**REDACTED**] basis. Such
revenue sources to be split shall include, but are not limited to: (i)
eCommerce advertisers provided by StoresOnline; (ii) the pro rata share of
Mall banner advertising to which Reseller is entitled for participating in
the Netgateway Online Mall network partners banner advertising program, and
(iii) click-through revenue from eTailer sales in the Malls. The parties
hereto shall mutually agree to pricing in the event advertising space is sold
on a straight-buy basis, and such revenues shall be split equally between the
two parties. For purposes of this Section 3.d, "net revenue" shall mean
gross revenues received from all existing and future revenue streams
generated by the Malls less any contractual fees, commissions and other
charges due from StoresOnline to third parties in connection with the
generation of such revenues, including, but not limited to, commission fees
for banner advertising placements and affiliate sales programs.
e. TAXES. All prices for any services or products supplied
hereunder are exclusive of any federal, state or local sales, use, excise, AD
VALOREM or personal property taxes levied, or any fines, forfeitures or
penalties assessed in connection therewith, as a result of this Agreement or the
installation or use of services or products hereunder (collectively, but
exclusive of taxes based upon StoresOnline's income, "Taxes"). Reseller or
Reseller's customers, as applicable, shall pay any and all such Taxes, or
StoresOnline may pay such Taxes for Reseller's account or Reseller's customers'
account, in which case Reseller shall be obligated to reimburse StoresOnline for
amounts so paid. Any such Taxes which are charged to or payable by StoresOnline
will be invoiced to and paid by Reseller in the manner set forth in Section 6
below. In the event that Reseller directly invoices its customers pursuant to
paragraph 6.c hereof, Reseller shall be solely responsible for the collection
and payment of any such Taxes.
4. PROMOTION. StoresOnline shall produce two thirty-second television
commercials promoting the Malls and the Services. Reseller, at its sole
expense, shall cablecast the commercials produced by Storesonline a combined
minimum of five hundred times per broadcast month, per broadcast market, in each
broadcast market where the Malls are fully functional, and shall continue to
cablecast such commercials for the term of this Agreement.
5. CUSTOMER ACCOUNTS.
a. CUSTOMER ACCOUNT REGISTRATION PROCESS. The Services provided
hereunder include an online or non-electronic registration process that
Reseller's customers will use to establish storefront accounts with
StoresOnline (the "ACCOUNTS"). In order to establish an Account, Reseller's
customers must complete the registration process in accordance with the terms
set forth by StoresOnline. The general terms and conditions for the use of
Accounts shall be posted from time to time on the Mall sites, or in the event
that StoresOnline establishes an electronic exchange for Reseller, such
information will be posted on Reseller's exchange. The terms and conditions
as posted shall, in all events and at all times, be binding upon the Reseller
and its customers who establish Accounts. The terms and conditions governing
such Accounts may be amended from time to time by StoresOnline in its sole
discretion.
b. CONTINUATION OF CUSTOMER ACCOUNTS. Continuation of each customer
Account is subject to the timely payment of the monthly fees associated with
such Accounts, and failure to do so shall constitute grounds for StoresOnline to
cancel and terminate an Account.
c. USE OF CUSTOMER INFORMATION. The parties hereto agree that
the use of end-user customer and shopper data by either party shall be
prohibited without the mutual consent of both parties. The manipulation,
collection or evaluation of any such data shall be for the internal use and
purposes of the parties only. In no event shall such information be resold,
leased or otherwise transferred to any third parties. Upon termination of this
Agreement, the parties shall cooperate in the use or disposal of all such
information. This provision and the restrictions contained herein shall survive
termination of this Agreement.
6. BILLING AND PAYMENT TERMS.
a. [RESERVED].
b. [RESERVED].
c. DIRECT RESELLER BILLING FOR SERVICES. Reseller shall invoice
its customers directly for the Services provided hereunder. Reseller shall
remit directly to StoresOnline on a monthly basis all applicable Store Set-up
fees and the Monthly Wholesale Retail Price for each active storefront in the
Malls as determined by Reseller. All such fees shall be paid in advance and
are due on the first day of each month.
d. BILLING FOR MALL RELATED CHARGES; ADVERTISING AND RELATED
REVENUES. All revenues generated from the Malls (including advertising and
related revenues) which are required to be split between StoresOnline and
Reseller pursuant to paragraph 3(d) hereof shall be invoiced and collected by
StoresOnline. StoresOnline shall thereafter forward all amounts due, if any, to
Reseller (net 30 days) at the address provided on the signature page hereto,
together with a statement setting forth the total amount collected, the amounts
payable to Reseller and the total amount remitted.
7. REAL TIME PAYMENT PROCESSING. In the event that a customer wishes to
use the StoresOnline real-time credit card payment processing option, such
customer must establish a customer account with an FDIC network bank and must
open an account with a participating credit-card processor.
8. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED
HEREIN, THERE ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND
DISCLAIMS ANY WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
WARRANTIES OF THE CORRECTNESS, ACCURACY, PRECISION, TIMELINESS OR
COMPLETENESS OF ANY INFORMATION OR SERVICES PROVIDED HEREUNDER.
b. LIMITATION OF LIABILITY. STORESONLINE, ITS DIRECTORS,
OFFICERS, AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO RESELLER OR
TO ANY THIRD PARTY FOR ANY LOSS OR DAMAGE, WHETHER DIRECT OR INDIRECT,
RESULTING FROM DELAYS OR INTERRUPTIONS OF SERVICE DUE TO MECHANICAL
ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS, STRIKES, WALK-OUTS,
EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH STORESONLINE, ITS
DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES OR AGENTS AGAINST WHOM LIABILITY
IS SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR
INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS,
OMISSIONS OR ERRORS IN THE TRANSMISSION OR DELIVERY OF THE SERVICES, OR ANY
DATA PROVIDED AS A PART OF THE SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO
THE EXTENT CAUSED BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF STORESONLINE.
IN ALL CASES ARISING FROM EVENTS OCCURRING DURING THE TERM OF THIS AGREEMENT,
WHETHER BASED UPON TORT, CONTRACT, WARRANTY, INDEMNITY, CONTRIBUTION OR
OTHERWISE, DAMAGES SHALL BE LIMITED TO, AND RESELLER AGREES NOT TO MAKE ANY
CLAIM OR CLAIMS EXCEEDING TWENTY-FIVE THOUSAND DOLLARS ($25,000.00),
REGARDLESS OF HOW MANY CLAIMS RESELLER MAY HAVE; PROVIDED, HOWEVER, THAT THE
DOLLAR LIMITATION SET FORTH IN THIS SENTENCE SHALL NOT APPLY TO MONIES DUE TO
RESELLER IN CONNECTION WITH ANY OF THE ACCOUNTS ESTABLISHED PURSUANT TO THIS
AGREEMENT. IN ADDITION, IN NO EVENT SHALL STORESONLINE BE LIABLE TO RESELLER
OR TO ANY THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
LOSSES OR DAMAGES WHICH RESELLER OR SUCH THIRD PARTY MAY INCUR OR EXPERIENCE
ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR UTILIZING THE
SERVICES, REGARDLESS OF WHETHER STORESONLINE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR
IN PART, BY THE NEGLIGENCE OF STORESONLINE.
c. TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY RESELLER
AGAINST STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES, AGENTS,
SUCCESSORS OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED
BREACH THEREOF, SHALL BE COMMENCED WITHIN TWO (2) YEARS OF THE FIRST
OCCURRENCE GIVING RISE TO SUCH CLAIM OR BE FOREVER BARRED. THIS PROVISION
DOES NOT MODIFY OR OTHERWISE AFFECT THE LIMITATION OF STORESONLINE'S
LIABILITY SET FORTH IN THIS PARAGRAPH 8 OR ELSEWHERE IN THIS AGREEMENT.
d. DISCLAIMER. THE WARRANTIES AND CONDITIONS SET FORTH HEREIN
AND THE OBLIGATIONS AND LIABILITIES OF STORESONLINE HEREUNDER ARE IN LIEU OF,
AND BUYER HEREBY WAIVES, ALL EXPRESS AND IMPLIED WARRANTIES AND CONDITIONS,
INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. IN NO EVENT SHALL STORESONLINE'S
LIABILITY FOR ANY CLAIM ASSERTED BASED ON A VIOLATION OF
<PAGE>
WARRANTY OR CONDITION EXCEED THE AMOUNT PAID BY RESELLER
TO STORESONLINE FOR THE AFFECTED ITEM OF SERVICES.
e. INFRINGEMENT. StoresOnline shall indemnify and hold Reseller
harmless from and against any claims by third parties pertaining to the
infringement of U.S. copyrights, trademarks or patents arising solely from
Reseller's use of any of computer programs or software products utilized by
StoreOnline to provide the Services as authorized hereunder, provided that
such computer programs or software products have not been altered, revised or
modified by Reseller in a manner that causes the alleged infringement, and
further provided that: (i) Reseller promptly notifies StoresOnline in
writing of such claim; (ii) StoresOnline shall have sole control of the
defense of any action on such claim and of all negotiations for its
settlement or compromise; (iii) Reseller cooperates with StoresOnline in
every reasonable way to facilitate the settlement or defense of such claim;
and (iv) should such Services become or, in StoresOnline's opinion, be likely
to become, the subject of an infringement claim, Reseller shall permit
StoresOnline, at StoresOnline's expense, to (1) procure for Reseller the
right to continue using such Services, or (2) replace or modify the same to
become functionally equivalent yet non-infringing, or (3) upon the failure of
(1) and (2) above, terminate, without penalty, Reseller's use of the affected
Services, in which event StoresOnline shall refund to Reseller on a pro-rata
basis any prepaid amounts related thereto. Notwithstanding the foregoing,
StoresOnline shall not be liable to indemnify Reseller for any claims of
infringement by third parties relating in any manner to the contents of the
Malls or any of the third party merchants' storefronts contained therein
provided by Reseller or any of its end-user customers.
f. INDEMNIFICATION. Each party, its directors, officers,
affiliates, employees and agents shall indemnify and hold harmless the other
party, its directors, officers, affiliates, employees and agents, from and
against any and all third party claims of up to twenty-five thousand dollars
($25,000) for any loss or damage resulting or arising solely from
circumstances or events reasonably within the control of the indemnifying
party; PROVIDED, HOWEVER, that the claim limitation set forth in the
preceding sentence shall not apply to monies due to the indemnified party
pursuant to the terms of this Agreement.
9. [RESERVED].
10. DEFAULT.
a. RESELLER'S DEFAULT. The failure by Reseller to make any
payment required hereunder or a material breach by Reseller of its
obligations hereunder shall constitute an event of default by Reseller. Upon
the occurrence of an event of default, StoresOnline shall provide Reseller
with written notice specifying the nature of such default. If Reseller has
not cured such default within thirty (30) days after receipt of such notice,
StoresOnline may, at its sole discretion, terminate this Agreement and/or
seek any other available remedies available at law or in equity; PROVIDED,
HOWEVER, that the cancellation of this Agreement shall not prevent Reseller
from reselling the Services (and sublicensing the software component thereof)
previously paid for by Reseller and sublicenses previously granted by
Reseller pursuant hereto shall not be affected by such termination.
b. STORESONLINE'S DEFAULT. The failure by StoresOnline to make
any payment required hereunder or a material breach by StoresOnline of its
obligations hereunder shall constitute an event of default by StoresOnline.
Upon the occurrence of an event of default by StoresOnline, Reseller shall
provide StoresOnline with written notice specifying the nature of such
default. If StoresOnline fails to cure such default within thirty (30) days
after receipt of such notice, Reseller may, at its sole option, terminate
this Agreement and/or seek any other available remedies available at law or
in equity.
c. INSOLVENCY. The commencement of any proceeding (voluntary or
involuntary) in bankruptcy or insolvency by or against either party hereto,
or the appointment (with or without the party's consent) of an assignee for
the benefit of creditors or a receiver with respect to either party hereto
shall constitute an event of default hereunder, and the non-defaulting party
may elect to terminate this Agreement immediately.
11. DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising
under this Agreement be resolved expeditiously, amicably, and at the level
within each party's organization that is most knowledgeable about the
disputed issue. The parties understand and agree that the procedures
outlined in this Paragraph 11 are not intended to supplant the routine
handling of inquiries and complaints through informal contact with customer
service representatives or other designated personnel of the parties.
Accordingly, for purposes of the procedures set forth in this paragraph, a
"DISPUTE" is a disagreement that the parties have been unable to resolve by
the normal and routine channels ordinarily used for such matters. Before any
dispute arising under this Agreement, other than as provided in subparagraph
e. below, may be submitted to arbitration, the parties shall first follow the
informal and escalating procedures set forth below.
(1) The complaining party will notify the other party in
writing of the dispute, and the non-complaining party will exercise good
faith efforts to resolve the matter as expeditiously as possible.
(2) In the event that such matter remains unresolved for
thirty (30) days after the delivery of the complaining party's written
notice, a senior representative of each party shall meet or confer within ten
(10) business days of a request for such a meeting or conference by either
party to resolve such matter.
(3) In the event that the meeting or conference specified
in (2) above does not resolve such matter, the senior officer of each party
shall meet or confer within ten (10) business days of the request for such a
meeting or conference by either party to discuss and agree upon a mutually
satisfactory resolution of such matter.
(4) If the parties are unable to reach a resolution of the
dispute after following the above procedure, or if either party fails to
participate when requested, the parties may proceed in accordance with
subparagraph b. below.
b. Except as provided in subparagraph e. below, any dispute
arising under this Agreement shall, after utilizing the procedures in
subparagraph a., be resolved by final and binding arbitration in Long Beach,
California, before a single arbitrator selected by, and in accordance with,
the rules of commercial arbitration of the American Arbitration Association.
Each party shall bear its own costs in the arbitration, including attorneys'
fees, and each party shall bear one-half of the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages
as are not prohibited by this Agreement and may, in addition and in a proper
case, declare rights and order specific performance, but only in accordance
with the terms of this Agreement.
d. Either party may apply to a court of general jurisdiction to
enforce a arbitrator's award, and if enforcement is ordered, the party
against which the order is issued shall pay the costs and expenses of the
other party in obtaining such order, including reasonable attorneys' fees.
e. Notwithstanding the provisions of subparagraphs a. and b.
above, any action by StoresOnline to enforce its rights under Paragraph 12e
of this Agreement or to enjoin any infringement of the same by Reseller may,
at StoresOnline's election, be commenced in the state or federal courts of
California, and Reseller consents to personal jurisdiction and venue in such
courts for such actions.
12. GENERAL.
a. ENTIRE AGREEMENT; AMENDMENT; SEVERABILITY. This Agreement,
the Stock Purchase Agreement and the Warrant Agreement, each dated of even
date herewith, constitute the entire agreement between StoresOnline and
Reseller and supersede all previous understandings, negotiations and
proposals, whether written or oral. This Agreement may not be altered,
amended or modified except by an instrument in writing signed by duly
authorized representatives of each party. In the event that any one or more
provisions contained in this Agreement should for any reason be held to be
unenforceable in any respect, such unenforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
unenforceable provision had not been contained herein.
b. FORCE MAJEURE. Notwithstanding anything contained herein to
the contrary, neither party shall be liable to the other for delays or
failures to perform an obligation to the other hereunder if such delay or
failure to perform is due to any act of God, acts of civil or military
authority, labor disputes, fire, riots, civil commotion's, sabotage, war,
embargo, blockage, floods, epidemics, delays in transportation, inability
beyond StoresOnline's reasonable control to obtain necessary labor, materials
or manufacturing facilities, or when due to governmental restrictions,
including the inability of StoresOnline to obtain appropriate U.S. export
license approval or the subsequent suspension of same. In the event of any
such delay or failure, the parties shall have an additional period of time
equal to the time lost by reason of the foregoing in which to perform
hereunder.
c. GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to principles
of choice of law.
d. ASSIGNMENT. Reseller shall not assign this Agreement or any
rights hereunder without the prior written consent of StoresOnline, which
consent shall not be unreasonably withheld; PROVIDED, HOWEVER, that Reseller
may assign this Agreement or any rights hereunder to a successor or affiliate
<PAGE>
corporation. StoresOnline may assign this Agreement to a subsidiary or
affiliate corporation.
e. DISCLOSURE OF INFORMATION. Each party hereto acknowledges
that, in the course of meeting its obligations under this Agreement, it will
obtain information relating to the other party, which is of a confidential
and proprietary nature ("PROPRIETARY INFORMATION"). Such Proprietary
Information may include, but is not limited to, trade secrets, know-how,
inventions, techniques, processes, programs, schematics, data, customer
lists, financial information and sales and marketing plans.
Each party shall at all times during the term of this Agreement and
for three years after its termination, keep in confidence and trust from any
person or entity, all Proprietary Information of the other party and shall
not disclose or use such Proprietary Information without the prior written
consent of the party which owns such Proprietary Information, unless
compelled to disclose such Proprietary Information by judicial or
administrative process (including, without limitation, in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of governmental or regulatory authorities) or by other
requirements of law. Upon termination of this Agreement, each party shall
promptly return to the other party all Proprietary Information under
itscontrol and all copies thereof.
Neither party shall disclose the specific terms of this Agreement
to any third parties except as may be mutually agreed or as required by law
or the order of a court of competent jurisdiction.
The above limitations on disclosure of Proprietary Information
shall not apply to information which becomes publicly available through no
act of the disclosing party, is released by the owning party in writing with
no restrictions, is lawfully obtained by the disclosing party without breach
of this Agreement from third parties without obligations of confidentiality,
is previously known by the disclosing party without similar restrictions as
shown by documents in its possession prior to disclosure or is independently
developed by the disclosing party.
f. COMPLIANCE WITH LAW. Reseller shall comply with all
applicable law the violation of which would have a material adverse effect on
StoresOnline or its business, including, without limitation, the export
control laws of the United States of America and prevailing regulations which
may be issued from time to time by the United States Department of Commerce
and any export control regulations of the United States and those countries
involved in transactions concerning the exporting, importing and re-exporting
of Services purchased under application of these terms and conditions.
Reseller shall also comply with the United States Foreign Corrupt Practices
Act and shall indemnify StoresOnline from violations of such act by Reseller.
This provision shall survive any termination or expiration of the Agreement.
g. EXERCISE OF REMEDIES. Any delay or omission by either party
to exercise any right or remedy under this Agreement shall not be construed
to be a waiver of any such right or remedy or any other right or remedy
hereunder.
h. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO
THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE
TO FAILURE TO PERFORM ITS OBLIGATIONS HEREUNDER.
i. HEADINGS. Headings contained in this Agreement are for
convenience only, are not a part of this Agreement, and do not in anyway
interpret, limit or amplify the scope, extent or intent of this Agreement or
any of the provisions hereof.
j. REGULATORY APPROVAL. Reseller warrants that the Services and
the Malls, when utilized with its own products, will comply with all
applicable industry and governmental standards and requirements.
StoresOnline assumes no responsibility or liability for these governmental
and regulatory standards or requirements, which liability and responsibility
is assumed entirely by Reseller. Upon request, StoresOnline will provide
copies of regulatory approvals to Reseller.
k. STORESONLINE BRANDING. StoresOnline shall have the right to
place a "POWERED BY NETGATEWAY" or "POWERED BY STORESONLINE" byline in a
prominent mutually agreed upon location on each storefront site and on each
Mall site.
l. PUBLICITY. StoresOnline (or its parent company, Netgateway,
Inc.) shall have the right to inform its customers and the public that
StoresOnline has entered into this Agreement with Reseller. Each party may
use the other's name or the name of its customers in marketing the Services
and the development of the Malls and may link to each other's websites, but
neither party will perform any actions which will harm the other's or its
customers name and reputation.
m. NOTICES. Any notice required in connection with this
Agreement shall be given in writing and shall be deemed effective upon
personal delivery or three business days after deposit in the United States
mail, registered or certified, postage prepaid and addressed to the party
entitled to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may designate
by ten (10) days' advance written notice to the other party. All facsimile
notices shall be confirmed by written notice mailed, as provided above,
within five (5) days of the date of the facsimile is sent. Once confirmed,
the notice shall be effective as of the date of the facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date set forth herein.
STORESONLINE.COM, INC., A CALIFORNIA CORPORATION
By /s/ Donald M. Corliss Jr.
---------------------------------------------------
Name: Donald M. Corliss Jr.
------------------------------------------
Its: Authorized Agent
NETGATEWAY, A NEVADA CORPORATION
By /s/ Donald M. Corliss Jr.
------------------------------------------------------
Name: Donald M. Corliss Jr.
------------------------------------------
Its: President
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
MEDIAONE OF COLORADO, INC.
By /s/ Edward H. Dunbar, Jr.
-------------------------------------------------
Name: Edward H. Dunbar, Jr.
------------------------------------------
Its: V.P.
------------------------------------------
Address for Notices:
188 Inverness Drive West, 6th Floor
Englewood, CO 80112
Address:
Telephone: (303) 858-3000
Facsimile: (303) 858-3487
E-mail Address:
StoresOnline Sales Representative: Alex Chaffetz
Company URL: Mediaone.com
Technical Contact:
Telephone:
E-mail Address:
<PAGE>
ADDENDUM
NAME OF RESELLER: MEDIAONE OF COLORADO, INC.
TYPE ENTITY: CORPORATION
DATE OF AGREEMENT: JULY 26, 1999
--
STANDARD FEATURE SET
Description of Reseller's Business: High speed Internet access, data
transmission and cable television programming services.
CATALOGS
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds and Ounces
- - Sending Methods: Internet, Fax/Mail and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: United States, Canadian Provinces and
World Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
- - Shipping Formula Functions: Minimum, Maximum and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable and Optional
- - Users and Passwords
CATEGORIES
- - Unlimited Categories
- - Full Description
- - Image
PRODUCTS
- - Base Item Number
- - Description: Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-Taxable Products
- - Weight
- - Category
- - Multiple Product Options (i.e., Color, Size)
- - Multiple Product Option Items (i.e., Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links to Related Items
- - Links to other URL's
- - Preview product pages
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
ORDERS
- - E-mail notification of new orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
STORESONLINE POINT OF SALE
- - Multiple Merchant Numbers
- - Automatic authorization of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
- - Freeze and Thaw Transactions
STORESONLINE HOSTING
- - Home Page Builder
- - Unique URL
- - 10 MB Free
- - Virtual hosting of existing domain names
- - Professionally designed templates
- - Customize your own templates
STORESONLINE SEARCH
- - Full Text Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
PRICING FOR STOREFRONT SERVICES:
Up to 100 Products: Additional products or additional
design work with respect to any
Monthly Base Wholesale Price: [**REDACTED**] storefronts may be included at
StoresOnline's standard hourly
101 to 300 Products: rates for such work.
Monthly Base Wholesale Price: [**REDACTED**] Scanning: [**REDACTED**] per
image (first 10 images
[**REDACTED**])
301 to 1000 Products:
Monthly Base Wholesale Price: [**REDACTED**]
One Time Store Set-up Fee:
Up to 100 products
Monthly Base Wholesale Price: [**REDACTED**]
ADDITIONAL PRODUCTS OR ADDITIONAL DESIGN WORK WITH RESPECT TO ANY STOREFRONTS
MAY BE INCLUDED AT STORESONLINE'S STANDARD HOURLY RATES FOR SUCH WORK.
[**REDACTED**]
<PAGE>
MALL DEVELOPMENT SERVICES AND PRICES
1. DEVELOPMENT. (a) StoresOnline shall develop, manage, maintain and
host the Malls, which shall be branded around the Reseller name, brand and
image. The Malls shall include an appropriate URL address, four to six featured
products from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text references,
and links to top tier eTailer sites (e.g., Amazon.com). The Malls shall also
include an appropriate search engine, commerce functionality, banner and other
appropriate advertising space, and such other features as both parties shall
reasonably direct. The Malls shall link to a local online Mall in each cable
market where Reseller has launched the sale of the Services pursuant to this
Agreement. The Malls shall be accessible and fully functional by September 1,
1999 or such earlier date as may be mutually agreed by the parties.
(b) ADDITIONAL MALLS MAY BE LAUNCHED PURSUANT TO THIS AGREEMENT UPON
RESELLER'S WRITTEN NOTICE TO STORESONLINE OF ITS INTENTION TO LAUNCH A MALL IN A
PARTICULAR BROADCAST MARKET. EACH ADDITIONAL MALL SHALL BE OPERATIONAL WITHIN
FOURTEEN (14) BUSINESS DAYS OF STORESONLINE'S RECEIPT OF A WRITTEN NOTICE OF
LAUNCH BY RESELLER. CUSTOMER STOREFRONTS DEVELOPED PURSUANT TO THIS AGREEMENT
SHALL BE OPERATIONAL WITHIN FOURTEEN (14) BUSINESS DAYS OF STORESONLINE'S
RECEIPT FROM A STOREFRONT CUSTOMER OF A COMPLETED STOREFRONT APPLICATION(S) AND
ANY OTHER INFORMATION REQUIRED TO COMPLETE SUCH STOREFRONT, INCLUDING, WITHOUT
LIMITATION, INFORMATION RELATED TO CUSTOM DEVELOPMENT SERVICES REQUIRED BY SUCH
CUSTOMER.
[**REDACTED**]
2. PRICING. StoresOnline shall waive its one-time development fee for
the Malls. Reseller shall be entitled to all revenue generated by the
Services and all associated television advertising revenue sold; PROVIDED,
HOWEVER, that StoresOnline shall be entitled to: (a) a one-time store setup
fee of $[**REDACTED**] for each storefront completed pursuant to this
Agreement; and (b) the Montly Base Wholesale Price for each active Reseller
storefront designated as such by Reseller, which amounts shall be payable in
accordance with the terms of this Agreement. Additional design work and
store development shall be available to Reseller and its end-user customers
at StoresOnline's standard hourly rates.
3. MALL REVENUES. It is anticipated that the Malls will generate
multiple revenue streams. Reseller and StoresOnline shall split the net
revenue generated from all such revenue sources on a [**REDACTED**] basis.
Such revenue sources to be split shall include, but are not limited to: (i)
eCommerce advertisers provided by StoresOnline; (ii) the pro rata share of
Mall banner advertising to which Reseller is entitled for participating in
the Netgateway Online Mall network partners banner advertising program; and
(iii) click-through revenue from eTailer sales in the Malls. The parties
hereto shall mutually agree to pricing in the event advertising space is sold
on a straight-buy basis, and such revenues shall be split equally between the
two parties. For purposes of this provision, "net revenue" shall mean gross
revenues received from all existing and future revenue streams generated by
the Malls less any contractual fees, commissions and other charges due from
StoresOnline to third parties in connection with the generation of such
revenues, including, but not limited to, commission fees for banner
advertising placements and affiliate sales programs.
4. PROMOTION. StoresOnline shall produce two thirty-second
television commercials promoting the Malls and the Services. Reseller, at
its sole expense, shall cablecast the commercials produced by StoresOnline a
combined minimum of five hundred times per broadcast month, per broadcast
market, in each broadcast market where the Malls are fully functional, and
shall continue to cablecast such commercials for the term of this Agreement.
5. EQUITY PARTICIPATION. Pursuant to a Stock Purchase
Agreement dated of even date herewith, Reseller shall receive 50,000 shares
of unregistered common stock of Netgateway, Inc., StoresOnline's corporate
parent. Such common stock shall be subject to applicable restrictions under
Rule 144 of the federal securities laws. Pursuant to a Warrant Agreement
dated of even date herewith, Reseller shall also receive warrants for the
purchase of up to 200,000 additional shares of common stock of Netgateway,
Inc.; such warrants shall vest incrementally in tranches of 50,000 warrants
as each additional one million of Reseller's cable television homes launch
the Malls (over the one million homes intended to be launched on or before
September 1, 1999) for a total of five million cable television homes ("Full
Distribution") to be launched on or before February 28, 2001. All warrants
which vest pursuant to this Agreement shall be exercisable by Reseller at a
price equal to the market value of the common stock of Netgateway, Inc. as of
the date such warrants are earned. Subject to certain divestiture
obligations (as set forth more fully in the Warrrant Agreement), all warrants
which vest pursuant hereto shall be exercisable for a period of two years
from the date on which such warrants vest.
6. MISCELLANEOUS. Reseller acknowledges and agrees that
StoresOnline intends to market independently the Services through various
other channels and other reseller relationships for which Reseller shall have
no participation. The parties hereto seek to launch the first Mall and begin
promotion thereof into one million of Reseller's cable television homes by
September 1, 1999. The parties shall use their best efforts to achieve Full
Distribution into all remaining Reseller cable television homes on or before
February 28, 2001.
<PAGE>
EXHIBIT A
STANDARD LICENSE AGREEMENT TERMS
1. LICENSE. This License allows you to use any software associated
with the provision of the Services.
2. RESTRICTIONS. You may not use, copy, modify or transfer the
program, or any copy, modification or merged portion, in whole or in part,
except as expressly provided for in this License. If you transfer possession of
any copy, modification or merged portion of the program to another party, your
License is automatically terminated.
3. TERM. The License is effective until terminated. You may
terminate it at any other time by notifying Reseller of your intent to do so.
The License will also terminate upon the occurrence of certain events set forth
elsewhere in this Agreement. Upon such termination, you agree to destroy the
program together with all copies, modifications and merged portions in any form.
4. EXPORT LAW ASSURANCES. You agree that neither the pogrom nor any
direct product thereof is being or will be shipped, transferred or re-exported,
directly or indirectly, into any country prohibited by the US Export
Administration Act and the regulations thereunder or will be used for any
purpose prohibited by the Act.
5. LIMITED WARRANTY. The program is provided "AS IS" without
warranty of any kind, either expressed or implied, including, but not limited
to, the implied warranties of merchantability and fitness for a particular
purpose. The full text of the warranty is provided in the user manual.
6. LIMITED LIABILITY. In no event will StoresOnline or Reseller be
liable to you for any damages, including any lost profits, lost savings or other
incidental or consequential damages arising out of the use or inability to use
such program even if StoresOnline or Reseller has been advised of the
possibility of such damages, or for any claim by any other party.
7. GENERAL. If you are a Government end-user, this License
conveys only "RESTRICTED RIGHTS," and in its use, disclosure and duplication
are subject to Federal Acquisition Regulations, subparagraph (c)(1)(11)
52.227-7013. (See U.S. Government End-User provisions in manual.) This
License will be construed under the laws of the State of California, except
for that body of law dealing with conflicts of law. If any provision of the
License shall be held by a court of competent jurisdiction to be contrary to
law, that provisions shall be enforced to the maximum extent permissible, and
the remaining provisions of this License shall remain in full force and
effect.
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is entered into as of this 26th day of July,
1999, by and between MediaOne of Colorado, Inc., a Delaware corporation (the
"BUYER") and Netgateway, Inc., a Nevada corporation (the "COMPANY").
RECITALS
WHEREAS, the Company is an electronic commerce service provider, and owns,
operates and maintains an Internet storefront building services package
comprised of certain services delivered through the Company's proprietary
software;
WHEREAS, the Buyer is engaged in engaged in [**REDACTED**] the business
of providing high speed Internet access, data transmission and cable
television programming services throughout the United States.
WHEREAS, the Company and the Buyer have entered into a strategic alliance
(the "STRATEGIC ALLIANCE") pursuant to which the Company shall become an
electronic commerce storefront provider for the Buyer;
WHEREAS, the Strategic Alliance will initially be comprised of three
initiatives to be performed by the Company for the Buyer, including the design
and development of: (a) an online shopping mall branded around the Buyer's name
and image; (b) an online store for the Buyer; and (c) a branded electronic
storefront service (including the Company's standard eCommerce features,
placement in the Buyer's branded online mall, storefront maintenance and
unlimited help desk support) which the Buyer shall resell to third party
merchants.
WHEREAS, in connection with the Strategic Alliance, the Company and the
Buyer have entered into a Cable Reseller and Mall Agreement (the "RESELLER
AGREEMENT") and a Warrant Agreement (the "WARRANT AGREEMENT") , each dated of
even date herewith (together with this Agreement, the "TRANSACTION AGREEMENTS");
WHEREAS, in consideration for the obligations of the Buyer under the
Reseller Agreement, the Company desires to issue to the Buyer, and the Buyer
desires to purchase, fifty thousand shares of the Company's common stock, par
value $.001 per share ("COMMON STOCK").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the Company and the Buyer hereby
agree as follows:
<PAGE>
SECTION 1. DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following
definitions shall apply:
"AGREEMENT" means this Stock Purchase Agreement by and between the
Buyer and the Company, as it may be amended or supplemented from time to time
pursuant to the provisions hereof.
"BY-LAWS" means the by-laws of Company, as the same may be amended or
modified from time to time.
"CERTIFICATE" means the articles or certificate of incorporation of
the Company, as the same may be amended, restated or modified from time to time.
"STOCK" means the 50,000 shares of Common Stock to be sold to the
Buyer pursuant to the terms of this Agreement.
SECTION 2. PURCHASE OF STOCK
2.1 PURCHASE OF STOCK. In consideration for the obligations of the
Buyer under the terms of the Reseller Agreement, the Company hereby issues and
sells to the Buyer, and the Buyer hereby purchases from the Company, fifty
thousand (50,000) shares of Common Stock. The Company hereby agrees to promptly
deliver the certificate(s) evidencing the Stock to the Buyer.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. In order to
induce the Buyer to enter into this transaction, the Company represents and
warrants as follows:
a. ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada.
b. CORPORATE POWER. The Company has all necessary corporate
power and authority to execute, deliver and perform this Agreement, the
Reseller Agreement and the Warrant Agreement and the transactions contemplated
hereby and thereby, and has all requisite corporate power and authority to sell
and issue the Stock hereunder and to carry out the transactions contemplated
hereby.
-2-
<PAGE>
c. STOCK. Upon issuance, the Stock will be duly authorized,
validly issued, fully paid and nonassessable, and issued in accordance with
applicable laws.
d. CAPITALIZATION AND VOTING RIGHTS. The authorized capital stock
of the Company consists, or will consist, immediately prior to the Closing, of:
(i) COMMON STOCK. _25,000,000 shares of Common Stock, of
which 9,648,404 shares are issued and outstanding.
(ii) Except for (i) an aggregate of 1,000,000 shares of Common
Stock reserved for issuance under the Company's 1998 Stock Compensation Plan
(including 998,301 shares subject to outstanding options granted thereunder);
(ii) an aggregate of 5,000,000 shares reserved for issuance under the Company's
1998 Stock Option Plan for Senior Executives (including 2,596,667 shares subject
to outstanding options granted thereunder); (iii) warrants to purchase an
aggregate of 1,750,100 shares of Common Stock; (vi) an aggregate of 240,000
shares reserved for issuance pursuant to options granted outside of either of
the Company's stock compensation plans; and (v) conversion rights in respect of
the Company's Secured Convertible Debentures Due December 31, 1999, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal) or agreements, orally or in writing, for the
purchase or acquisition from the Company of any shares of its capital stock.
The Company is not a party or subject to any agreement or understanding and, to
the Company's best knowledge, there is no agreement or understanding between any
persons and/or entities, which affects or relates to the voting or giving of
written consents with respect to any of the Company's securities or the voting
by or election of a director of the Company.
(iii) All outstanding securities of the Company were duly and
validly authorized and issued, are fully paid and nonassessable, and were issued
in accordance with the registration or qualification provisions of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and any relevant
state securities laws, including Blue Sky laws, or pursuant to valid exemptions
therefrom, and in accordance with the other applicable provisions of the
Securities Act and the rules and regulations promulgated thereunder, and Rule
10b-5 under the Securities Exchange Act of 1934, as amended.
e. GOVERNMENTAL CONSENTS. Except for the filing of notices
required or permitted to be filed after the date hereof with certain United
States federal and state securities commissions, which notices the Company
will file on a timely basis, no consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with valid execution, delivery and performance of the
Transaction Agreements or the consummation of the transactions contemplated
therein.
-3-
<PAGE>
f. COMPLIANCE WITH OTHER INSTRUMENTS. The Company has not violated
and is not in violation, breach or default of any: (a) provision of its
Certificate, or its Bylaws or any term or provision of any instrument, judgment,
order, writ or decree: (b) any mortgage, note or other evidence of indebtedness
or any lease, contract or any other agreement or obligation to which the Company
is a party or by which it or its properties are bound (each a "DOCUMENT"); or
(c) any provision of any federal or state law, rule or regulation applicable to
the Company, the violation, breach or default of which would materially and
adversely affect the assets, properties, financial condition, operating results,
prospects or business of the Company. The execution, delivery and performance
of the Transaction Agreements and the consummation of the transactions
contemplated therein, will not result in any such violation or breach or be in
conflict with or constitute, with or without the passage of time and giving of
notice, a default under any Document.
g. INTELLECTUAL PROPERTY RIGHTS.
(i) The Company has full title to and ownership of or has
the legal right to use all: (i) patents, patent applications, trademarks,
service marks, trade names, trade dress, copyrights and any renewal rights
therefor, mask works, net lists, schematics, technology, manufacturing
processes, supplier lists, trade secrets, know-how, computer software
programs or applications (in both source code and object code); (ii) software
and firmware listings, fully commented and updated software source code, and
complete system build software and instructions related to all software
described therein; and (iii) documents, records and files relating to design,
end user documentation, manufacturing, quality control, sales, marketing and
customer support for all intellectual property described above (collectively
"INTELLECTUAL PROPERTY") necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement of the
rights of others. [**REDACTED**] there are no outstanding material options,
licenses or agreements of any kind relating to the Company's Intellectual
Property, nor is the Company bound by or a party to any material options,
licenses or agreements of any kind with respect to the Intellectual Property
of any other person or entity.
(ii) To the Company's best knowledge, there is no unauthorized
use, infringement or misappropriation of any of the Company's Intellectual
Property by any third party, employee or former employee, the use of which would
materially and adversely affect the assets, properties, financial condition,
operating results, prospects or business of the Company or the Company's
Intellectual Property. To the Company's best knowledge, the Company has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property of any third party, nor has the Company
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any Intellectual Property of
-4-
<PAGE>
any third party.
h. NO BREACH BY EMPLOYEE. The Company is not aware after
due inquiry of its employees that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution or
delivery of the Transaction Agreements nor the performance of the obligations
contemplated thereby, nor the carrying on of the Company's business by the
employees, agents and independent contractors of the Company, nor the conduct of
the Company's business as proposed will, to the Company's knowledge after due
inquiry of its employees, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any law, judgment,
order, decree, contract, covenant or instrument under which any of such
employees, agents or independent contractors is now subject to or obligated.
The Company does not believe it is or will be necessary to utilize any
inventions, trade secrets or proprietary information of any of its employees
made prior to their employment with or retention by the Company, except for
inventions, trade secrets or proprietary information that have been assigned to
the Company.
i. PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each former
and current employee and officer of the Company has executed an agreement with
the Company regarding confidentiality, proprietary information and inventions
assignments substantially in the form or forms delivered to the Buyer. The
Company, after reasonable investigation, is not aware that any of its employees
or officers are in violation of such agreements, and the Company will use best
efforts to prevent any such violation. All consultants to or vendors of the
Company with access to confidential information of the Company are parties to a
written agreement substantially in the form or forms provided to the Buyer under
which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of confidential information of the Company. The
Company, after reasonable investigation, is not aware that any of its
consultants or vendors are in violation of such agreements, and the Company will
use its best efforts to prevent any such violation.
j. AGREEMENTS; ACTIONS.
(i) Except in the ordinary course of business or as disclosed
in writing to the Buyer, there are no agreements, understandings (oral or
written), instruments, licenses, contracts, proposed transactions, judgments,
orders, writs or decrees to which the Company is a party or by which it or
any of its properties is bound that may involve: (A) obligations (contingent
or otherwise) of, or payments to, the Company in excess of $50,000; (B)
provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services; or (C) indemnification by
the Company with respect to overt allegations infringement of any
Intellectual Property.
-5-
<PAGE>
(ii) The Company has not: (A) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock; (B) incurred any indebtedness, other than the Secured
Convertible Debentures due December 31, 1999, ordinary trade indebtedness or as
otherwise disclosed to the Buyer in writing, for money borrowed, individually or
in the aggregate, in excess of $50,000; (C) made any loans or advances to any
person, other than ordinary advances for travel expenses; or (D) sold, exchanged
or otherwise disposed of any of its assets or rights, other than the sale of
inventory in the ordinary course of business.
(iii) For purposes of subsection (ii) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person or entity (including persons or
entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amount of
such subsection.
(iv) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Certificate, or Bylaws, which materially and adversely affects the assets,
properties, financial condition, operating results, prospects or business of the
Company as now conducted or as proposed to be conducted.
k. LITIGATION. Except for the Company's dispute with
[**REDACTED**] there is no action, suit, proceeding or investigation pending
or, to the best knowledge of the Company, threatened against the Company or
any of its properties or assets where the amount in controversy exceeds
$15,000 or that questions the validity of the Transaction Agreements or any
action taken or to be taken in connection therewith. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
l. PERMITS. The Company has all franchises, permits, licenses and
other similar authorities necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
assets, properties, financial condition, operating results, prospects or
business of the Company, and the Company believes that it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted. The Company is not in default under any such
franchises, permits, licenses or other similar authority.
m. TITLE TO PROPERTY AND ASSETS. Other than the Secured Convertible
Debentures due December 31, 1999, the Company owns its properties and assets
free and clear of all mortgages,
-6-
<PAGE>
deeds of trust, liens, encumbrances, security interests and claims, except
such encumbrances and liens which arise in the ordinary course of business
and do not materially impair the Company's ownership or use of such property
or assets. With respect to the property and assets it leases, the Company is
in compliance with such leases and, to the Company's best knowledge, holds
valid leasehold interests in such properties and assets free and clear of any
liens, encumbrances, security interests or claims of any party other than the
lessors of such property and assets.
n. FINANCIAL STATEMENTS. The Company has delivered to the Buyer its
audited financial statements (balance sheet and statement of operations,
statement of changes in stockholder's equity and statement cash flows, including
notes thereto) at June 30, 1998 and for the fiscal year then ended, and its
unaudited financial statements (balance sheet and statement of operations) as at
and for the nine-month period ended March 31, 1999 (collectively, the "FINANCIAL
STATEMENTS"). The Financial Statements: (i) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the period indicated and with each other; (ii) have been compiled
from and are in accordance with the Company's books and records; (iii) are
complete and correct in all material respects; and (iv) fairly present the
financial condition, assets and liabilities and operating results of the Company
as of the dates, and for the periods, indicated therein; PROVIDED, HOWEVER, that
the unaudited Financial Statements are subject to year-end audit adjustments
(which, individually or in the aggregate, are not expected to be material) and
do not contain all footnotes required under generally accepted accounting
principles. Except as set forth in the Financial Statements or as disclosed in
writing to the Buyer or as otherwise contemplated herein, the Company has no
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to March 31, 1999, and
(ii) obligations under contracts and commitments incurred in the ordinary course
of business and not required under generally accepted accounting principles to
be reflected in the Financial Statements, which, in both cases, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company.
o. TAX RETURNS, PAYMENTS AND ELECTIONS. [**REDACTED**] The
Company has paid, or will pay, all taxes and other assessments due, except
those contested by it in good faith and except to the extent that a reserve
has been reflected on the Financial Statements in accordance with generally
accepted accounting principles. The Company has not elected, pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as
a Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that could materially and adversely
affect the assets, properties, financial condition, operating results,
prospects or business of the Company as presently conducted or as proposed to
be conducted. The Company has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment
-7-
<PAGE>
or collection of any tax or governmental charge. None of the Company's
federal income tax returns and none of its state income or franchise tax or
sales or use tax returns has ever been audited by governmental authorities
and the Company is not in any dispute with any tax authorities. The Company
has caused to be withheld or collected from each payment made to each of its
employees, the amount of all taxes (including, but not limited to, Federal
income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom,
and has caused the same to be paid to the proper tax receiving officers or
authorized depositories.
p. YEAR 2000.
(i) For purposes of this Agreement, "YEAR 2000 COMPLIANT" means
that the applicable software, hardware or firmware product, including, without
limitation, any embedded microcontrollers (each, a "COMPUTER SYSTEM") will
correctly differentiate between years in different centuries and will accurately
process date/time data, including, but not limited to, recording, storing,
processing, comparing, sequencing, calculating and presenting calendar dates
(including Leap Year dates and dates that may also be interpreted as so-called
"magic numbers," such as "9999" instead of September 9, 1999) falling before,
on, during and after (and, if applicable, spans of time including) January 1,
2000, including correctly differentiating between years, in different centuries,
that end in the same two digits. "YEAR 2000 COMPLIANT" also means that the
applicable Computer System accurately processes any information dependent on or
relating to such dates without loss of functionality, data integrity or
performance.
(ii) The Company is presently conducting an inventory of the
Computer Systems used in the Company's business in order to determine whether
such Computer Systems are Year 2000 Compliant. The Company is in the process of
upgrading or replacing such Computer Systems that are not Year 2000 Compliant to
ensure that such systems are Year 2000 Compliant prior to December 31, 1999 or
such earlier date on which the applicable Computer System may shut down or
produce incorrect calculations or otherwise malfunction without becoming totally
inoperable. The Company is not aware of any events or circumstances that would
delay or preclude the upgrading and implementation of such upgrades prior to
December 31, 1999 or such earlier date on which the applicable Computer Systems
may shut down or produce incorrect calculations or otherwise malfunction without
becoming totally inoperable. The costs of upgrading the Company's Computer
Systems to be Year 2000 Compliant will not be material.
(iii) All Computer Systems sold, leased or licensed, subleased or
sublicensed by the Company, including, without limitation, all Computer
Systems integrated with the Company's products (whether or not developed,
manufactured or otherwise produced by the Company) to third parties are Year
2000 Compliant. The Company has not made any misrepresentation to any
customer or end-user regarding the Year 2000 Compliant status of any such
Computer Systems.
-8-
<PAGE>
q. DISCLOSURE. The Company has fully provided the Buyer with all
information reasonably available to it without undue expense that the Buyer has
requested for deciding whether to purchase the Stock and all of the information
(including copies of all material agreements to which the Company is a party)
which the Company believes is material to Buyer in making such decision.
Neither this Agreement , the Reseller Agreement, the Warrant Agreement nor any
other exhibits, schedules, statements or certificates made or delivered in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
or therein not misleading.
r. INSURANCE. The Company has in full force and effect (i) fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and (ii) standard comprehensive general
liability insurance coverage customary for companies similarly situated to the
Company.
s. RELATED PARTY TRANSACTIONS. Except as (i) set forth in the
Company's Form S-1 dated June 1, 1999, as amended (and filed with the Securities
and Exchange Commission thereon); (ii) set forth in the Transaction Agreements;
and (iii) provided for in any compensation arrangements made in the ordinary
course of business, there are no agreements, understandings or proposed
transactions between the Company and any of its employees, officers, directors,
affiliates or any affiliate thereof, and no employee, officer, or director of
the Company or member of his or her immediate family is indebted to the Company,
nor is the Company indebted (or committed to make loans or extend guarantee
credit) to any of them. To the Company's best knowledge, none of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers or directors of the Company and members of their
immediate families may own stock in publicly traded companies that may compete
with the Company. Except as disclosed to the Buyer in writing, no shareholder,
employee, officer or director of the Company or member of his or her immediate
family is directly or indirectly interested in any material contract with the
Company. Except for that certain Lease Agreement, dated as of June 2, 1999,
for the rental by the Company of office space located at 1333 8th Street
S.W., Calgary, Alberta, Canada, the Company is not a guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
3.2. REPRESENTATION AND WARRANTIES OF THE BUYER. In order to induce
the Company to enter into this transaction, the Buyer represents and warrants as
follows:
a. ORGANIZATION AND STANDING. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
-9-
<PAGE>
b. CAPITALIZATION. The Buyer is a corporation, not formed for
purposes of purchasing the Stock, with total assets in excess of US $5 million.
c. CORPORATE POWER. The Buyer has all necessary power and
authority to execute, deliver and perform this Agreement, the Reseller Agreement
and the Warrant Agreement and the transactions contemplated hereby and thereby.
All necessary corporate proceedings of the Buyer have been duly taken to
authorize the execution, delivery and performance of the Transaction Agreements.
The Transaction Agreements have been duly authorized, executed and delivered by
the Buyer, are the legal, valid and binding obligations of the Buyer and are
enforceable in accordance with their terms
d. RESTRICTION ON TRANSFER. The Buyer hereby acknowledges and
agrees that the Stock has not been registered under the Securities Act of 1933,
as amended (the "ACT"), or qualified with the securities regulatory agency of
any state and may not be resold or otherwise disposed of unless registered under
the Act or qualified with the securities regulatory agency of any state which
has jurisdiction over any such transfer or unless an exemption from such
registration or qualification is available. The Buyer will transfer the Stock
only in accordance with the applicable requirements of all federal and state
securities laws. The Buyer acknowledges that the certificate(s) evidencing the
Stock will bear a legend regarding restriction on transfer. Notwithstanding the
foregoing, the Buyer may, in accordance with the requirements of all applicable
federal and state securities laws, transfer any or all of its Stock to any
person or entity that, directly or indirectly, controls or is controlled by or
is under common control with, the Buyer.
e. INVESTMENT. The Buyer is purchasing the Stock for its own
account, for investment purposes only, and not for the account of any other
person, and not with a view to, or for offer or sale in connection with, any
distribution, assignment or resale to others or to fractionalization in whole or
in part.
f. RISK. The Buyer recognizes that investment in the Company
involves substantial risks, and it has experience in financial and business
matters is such that it is capable of evaluating the risks of an investment in
the Stock. The Buyer is able to bear the substantial economic risks of an
investment in the Company for an indefinite period of time, , and at the present
time, could afford a complete loss of such investment.
g. DUE DILIGENCE. The Buyer acknowledges that all documents,
records and books pertaining to this investment have been made available for
inspection to the Buyer. The Buyer has had a reasonable opportunity to ask
questions of and receive answers from the Company concerning the investment and
all such questions have been answered to the full satisfaction of the Buyer.
-10-
<PAGE>
SECTION 4. GENERAL
4.1. GOVERNING LAW. This Agreement, and the legal relations between
the parties with respect hereto, shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such state without regard to principles of conflicts of law.
4.2. HEADINGS. The descriptive heading of the Sections of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
4.3. ENTIRE AGREEMENT. The Transaction Agreements contain the
entire agreement and understanding of the parties hereto, and incorporate all
prior and contemporaneous discussions, agreements and understanding between the
parties with respect to the subject matter hereof, and no party shall be liable
to the other party with respect to any warranties, representations or covenants
except as specifically set forth in the Transaction Agreements.
4.4 COUNTERPARTS. This Agreement and any amendment hereto may be
executed in one or more counterparts and by different parties in separate
counterparts. Such counterparts shall constitute one and the same agreement and
shall become effective when the counterparts have been signed by each party and
delivered to the other party.
4.5. ATTORNEYS' FEES. In the event of any action by any party
arising under or out of, in connection with or in respect of the Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
expenses incurred in such action.
4.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of both the Buyer and the Company contained in or
made pursuant to this Agreement shall survive the execution and delivery of this
Agreement.
4.7. MODIFICATION. Neither this Agreement, nor any provisions
hereof, shall be waived, modified, changed, discharged, terminated, revoked or
canceled except by an instrument in writing signed by the party against whom any
change, discharge or termination is sought.
IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized of the date first written above.
-11-
<PAGE>
COMPANY:
NETGATEWAY, INC.
By: /s/ Donald M. Corliss, Jr.
------------------------------
Name: Donald M. Corliss, Jr.
Title: President
BUYER:
MEDIAONE OF COLORADO, INC.
By: /s/ Edward H. Dunbar, Jr.
------------------------------
Name: Edward H. Dunbar, Jr.
Title: VP
-12-
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
STORESONLINE.COM
DISTRIBUTOR MALL AND STOREFRONT AGREEMENT
BUYSELLBID.COM, INC.
THIS DISTRIBUTOR MALL AND STOREFRONT AGREEMENT (the "AGREEMENT") is made and
entered into as of the date set forth on the Addendum attached hereto and by
this reference made a part hereof (the "ADDENDUM"), between and among
STORESONLINE.COM, INC., a California corporation, and NETGATEWAY, a Nevada
corporation, on the one hand (collectively, "STORESONLINE"), and BUYSELLBID.COM,
INC., a Delaware corporation ("DISTRIBUTOR"), on the other hand.
R E C I T A L S
A. Distributor is an established business entity, engaged in the
business described on the Addendum.
B. StoresOnline owns, operates and maintains an Internet
storefront-building services package comprised of certain services delivered
through StoresOnline's proprietary software, the standard features of which
are more particularly described on the Addendum (the "SERVICES").
C. The Services are delivered through the Internet and may be made
available through a private, branded electronic exchange to be developed for
resellers of Distributor.
D. StoresOnline desires to (i) sell and license the Services to
Distributor for Distributor's resale and sublicense to resellers and end-user
customers and (ii) develop one or more on-line mall(s) to be branded around each
reseller's name, brand and image (the "Malls").
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. SERVICES.
a. SCOPE OF AGREEMENT. This Agreement covers (i) the purchase,
licensing and sale of the Services and (ii) the design and development of the
Malls pursuant to and in accordance with the terms and conditions set forth on
the Addendum.
b. LICENSE GRANT; SALE OF SERVICES. During the term of this
Agreement, StoresOnline grants to Distributor, subject to the terms and
conditions of this Agreement, the non-exclusive right and license to resell
and sublicense (in the case of software products), the Services to
Distributor's reseller customers; PROVIDED, HOWEVER, that, solely with
respect to Distributor's media partners and reseller customers which are
involved in the radio broadcasting industry, StoresOnline grants to
Distributor the exclusive right and license to resell and sublicense (in the
case of software products), the Services to such media partners and reseller
customers. In the case of software products, Distributor acknowledges that
such software is and will remain proprietary to StoresOnline, is copyrighted
and that Distributor acquires no right, title or interest in or to any such
software by this Agreement. Distributor agrees to sublicense the Services
hereunder pursuant to the Standard License Agreement Terms set forth on
Exhibit "A" hereto, and to cause each of its resellers to sublicense the
Services pursuant to such license terms. All agreements between Distributor
and any of its resellers for the resale and sublicense of the Services shall
be in form and substance satisfactory to StoresOnline and its counsel.
c. PRODUCT NAME. It is expressly agreed that the ownership and all
right, title and interest in and to the Services and any trademark, trade name,
patent or copyright relating to the Services is and will remain vested solely in
StoresOnline; PROVIDED, HOWEVER, that as permitted by this Agreement,
Distributor may use any existing or future trademark, trade name, patent or
copyright relating to the Services, such use to be limited to promoting,
selling, installing or maintaining the Services; and PROVIDED, FURTHER, that as
permitted by this Agreement, the Services may be branded around the name, brand
and image of one or more of Distributor's resellers. Distributor shall use its
best efforts during the term of this Agreement to protect StoresOnline's
trademarks, trade names, patents and copyrights, but shall not be required to
instigate legal action against third parties for any infringement thereof.
Distributor shall notify StoresOnline of any infringement as soon as practicable
after becoming aware of any such infringement. Distributor shall not use,
directly or indirectly, in whole or in part, StoresOnline's name or any other
trade name or trademark that is owned or used by StoresOnline in connection with
any product other than StoresOnline's products, without the prior written
consent of StoresOnline.
d. MALL DEVELOPMENT. StoresOnline shall develop the Malls in
accordance with the terms and conditions set forth herein and on the
Addendum. The Malls shall be branded around name, brand and image of
Distributor and/or Distributor's resellers and shall link to such reseller's
branded StoresOnline individual storefront solution. The Malls will include
appropriate URL addresses, four to six featured products and stores from
various Distributor, reseller and/or third party advertisers, additional
Distributor/reseller and non-Distributor/non-reseller advertiser stores and
products catalogued with text references, and links to top-tier eCommerce
sites, as approved by Distributor.. The Malls will also include an
appropriate search engine, commerce functionality, banner and other
appropriate advertising space and such other features as the parties shall
mutually agree. The Mall will be capable of cataloguing stores independently
or in conjunction with all other Malls developed hereunder, if any, as well
as other malls which belong to the StoresOnline electronic mall network.
Distributor agrees and understands that the storefronts contained in the
Malls may be placed in one or more electronic malls developed and/or operated
by StoresOnline.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as of
the execution hereof and continue for an initial term of six (6) months. The
Agreement shall automatically be extended for successive six-month terms
thereafter unless either party notifies the other, not less than thirty (30)
days prior to the expiration of the applicable term, of its intention not to
renew.
a. Notwithstanding the foregoing, this Agreement may be
terminated in accordance with the provisions of Section 10.
b. Termination of this Agreement shall not relieve either party
of any obligations incurred prior to termination, including outstanding
delivery and payment obligations and other contractual commitments herein or
mutually agreed to from time to time by the parties in writing. The
obligations set forth in Sections 3d, 6b, 8, 10a, 12c, 12e, 12f and 12h are
expressly intended to survive termination of this Agreement.
3. PRICES AND TAXES.
a. PRICES FOR SERVICES. StoresOnline shall charge Distributor's
end-user customers the one-time Store Set-up Price set forth on the Addendum
for each electronic storefront that is established pursuant to this
Agreement. StoresOnline shall charge Distributor the applicable Monthly Base
Wholesale Price set forth on the Addendum for each active storefront. Unless
Distributor elects to bill its customers directly in accordance with
paragraph 6.c herein, the Monthly Base Wholesale Price for each active
storefront shall be offset by StoresOnline against payments due to
Distributor and the applicable mall reseller in accordance with paragraph 6.b
hereof.
b. PRICE ADJUSTMENTS FOR SERVICES. The prices for the Services
set forth on the Addendum (other than the Retail Prices which are set by
Distributor) are subject to change by StoresOnline at any time, and shall
become effective ninety (90) days after written notification of such change
to Distributor. Distributor shall retain the right to terminate this
Agreement during such notification period in the event such price changes are
not acceptable.
c. RETAIL PRICES FOR SERVICES. On or before the first day of
each month, Distributor shall provide StoresOnline with a list of the
Distributor prices charged for each class of Accounts or for each Account (as
hereinafter defined).
d. PRICES FOR MALL DEVELOPMENT; MALL REVENUE SPLIT. All prices
for Mall design, development and operation provided hereunder shall be as set
forth on the Addendum. It is anticipated that the Malls will generate
multiple revenue streams. After deducting amounts due to reseller, net
revenue generated from all such revenue sources shall be split as follows:
[**REDACTED**] to StoresOnline, [**REDACTED**] to Distributor, unless
StoresOnline waives the Mall development fees at time of Mall development in
which case the split, after deducting amounts due to reseller, shall be
[**REDACTED**] to StoresOnline and [**REDACTED**] to Distributor. Such
revenues sources to be split shall include, but are not limited to: (i)
eCommerce advertisers provided by StoresOnline; (ii) the pro rata share of
Mall banner advertising attributable to Distributor; (iii) click-through
revenue from eTailer sales; and (iv) revenue generated from featured product
sales. The parties hereto shall mutually agree to pricing in the event
advertising space is sold on a straight-buy basis.
e. TAXES. All prices for any services or products supplied
hereunder are exclusive of any federal, state or local sales, use, excise, AD
VALOREM or personal property taxes levied, or any fines, forfeitures or
penalties assessed in
<PAGE>
connection therewith, as a result of this Agreement or the installation or
use of services or products hereunder (collectively, but exclusive of taxes
based on StoresOnline's income, "Taxes"). Distributor or Distributor's
customers, as applicable, shall pay any and all such Taxes, or StoresOnline
may pay such Taxes for Distributor's account or Distributor's customers'
account, in which case Distributor shall be obligated to reimburse
StoresOnline for amounts so paid. Any such Taxes which are charged to or
payable by StoresOnline will be invoiced to and paid by Distributor in the
manner set forth in Section 6 below. In the event that Distributor directly
invoices its customers pursuant to paragraph 6.c hereof, Distributor shall be
solely responsible for the collection and payment of any such Taxes.
In the event that Distributor requests that StoresOnline arrange for the
installation of high speed telecommunications services necessary for
Distributor's use, such services will be maintained in StoresOnline's name or
Distributor's name, as determined by StoresOnline in its sole discretion. In
the event that such services are maintained in the name of StoresOnline,
Distributor shall promptly remit payment to StoresOnline for all charges in
connection with the installation and use thereof. STORESONLINE SHALL NOT BE
LIABLE TO DISTRIBUTOR FOR ANY FAILURE, FAULT, DELAY, INTERRUPTION OR LOSS OF
TELECOMMUNICATIONS SERVICES EXCEPT TO THE EXTENT CAUSED BY STORESONLINE'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.
4. FORECASTS. Within thirty (90) days of execution of this Agreement,
Distributor shall provide StoresOnline with a written, non-binding forecast of
Distributor's projected purchases of Services for the following twelve (12)
calendar months, with a projected number of Malls and Account (as hereinafter
defined) quantities to be identified by month. Such forecast shall be updated
monthly by Distributor to set forth forecasts for each subsequent twelve (12)
month period.
5. CUSTOMER ACCOUNTS.
a. CUSTOMER ACCOUNT REGISTRATION PROCESS. The Services provided hereunder
include an online registration process that end-user customers (i.e., merchants)
will use to establish storefront accounts with StoresOnline (the "ACCOUNTS").
In order to establish an Account, such customers must complete an on-line
registration process in accordance with the terms set forth on the applicable
Mall website. At the option of the customer, registration may also be completed
non-electronically. To establish an Account, end-user customers must also
provide credit card information and authorize the payment of fees for Services
on a monthly basis in advance. The general terms and conditions for the use of
Accounts shall be posted from time to time on the applicable Mall web site, or
in the event that StoresOnline establishes an electronic exchange for
Distributor or Distributor's reseller, such information will be posted on such
exchange. The terms and conditions as posted shall, in all events and at all
times, be binding upon the Distributor, its resellers and their customers who
establish Accounts. The terms and conditions governing such Accounts may be
amended on-line from time to time by StoresOnline in its sole discretion.
b. CONTINUATION OF CUSTOMER ACCOUNTS. Continuation of each customer
Account and the Malls are subject to the timely payment of the monthly fees
associated with such Accounts and Malls, and failure to do so shall constitute
grounds for StoresOnline to cancel and terminate an Account or to shut down the
Mall.
6. BILLING AND PAYMENT TERMS.
a. INVOICING FOR SERVICES. StoresOnline shall electronically
invoice all end-user customers and directly charge against the credit card
accounts provided by such customers for that purpose during the registration
process for the retail price of the Services charged by Distributor. All
fees due from customers shall be paid in advance and are due on the first day
of each month. In preparing the invoices and charging against the applicable
credit cards, StoresOnline shall use the most recent Distributor retail
prices provided to StoresOnline by Distributor pursuant to Section 3.c hereof
for the Accounts invoiced.
b. PAYMENT AND COLLECTION FOR SERVICES. StoresOnline shall collect
the monthly fees set by Distributor from all end-user customers on a monthly
basis and, after deducting any fees and expenses to which it is entitled
hereunder, shall remit (i) all amounts due to the applicable reseller in a
manner approved by Distributor, and (ii) the balance to Distributor, together
with statements setting forth the amounts collected, the amounts deducted and
the total amount remitted within 45 days after the month in which such amounts
were collected. In the event payment is not received by StoresOnline within the
specified time, an additional late charge of one and one half percent (1.5%) of
the past due amount will be assessed to such late paying customer for each
thirty (30) days outstanding, prorated on a daily basis, which late charges
shall be payable in full to StoresOnline. All payments for Services shall be
made in United States dollars.
c. DIRECT DISTRIBUTOR BILLING FOR SERVICES. Distributor may invoice
its customers directly for the Services provided hereunder. In such event,
Distributor shall remit directly to StoresOnline the applicable Monthly Base
Wholesale Price (per storefront). All such fees shall be paid in advance and
are due on the first day of each month.
d. BILLING FOR MALL RELATED CHARGES; ADVERTISING AND RELATED
REVENUES. StoresOnline shall invoice Distributor directly for all charges due
hereunder in connection with the design, development and operation of the Malls,
which charges shall be payable by Distributor in accordance with the Addendum.
All revenues generated from the Malls (including advertising and related
revenues) which are required to be split between StoresOnline and Distributor
pursuant to paragraph 3(d) hereof shall be invoiced and collected by
StoresOnline if due from individual stores or advertising sold by Stores Online;
and by Stores Online or Distributor, as determined by Distributor, if from
reseller or advertising sold by reseller or Distributor. StoresOnline and/or
Distributor shall thereafter forward all amounts due, if any, to the other party
(net 45 days) at the address provided on the signature page hereto, together
with a statement setting forth the total amounts collected, the amounts payable
and the amounts remitted.
7. REAL TIME PAYMENT PROCESSING. In the event that a customer wishes to
use the StoresOnline real-time credit card payment processing option, such
customer must establish a customer account with an FDIC network bank and must
open an account with a participating credit-card processor.
8. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
THERE ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND DISCLAIMS ANY
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTIES OF THE
CORRECTNESS, ACCURACY, PRECISION, TIMELINESS OR COMPLETENESS OF ANY INFORMATION
OR SERVICES PROVIDED HEREUNDER.
b. LIMITATION OF LIABILITY. STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO DISTRIBUTOR, ANY
RESELLER OR TO ANY OTHER THIRD PARTY FOR ANY LOSS OR DAMAGE, WHETHER DIRECT OR
INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF SERVICE DUE TO MECHANICAL
ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS, STRIKES, WALK-OUTS,
EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH STORESONLINE, ITS
DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES OR AGENTS AGAINST WHOM LIABILITY IS
SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR INDIRECT,
RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS, OMISSIONS OR
ERRORS IN THE TRANSMISSION OR DELIVERY OF THE SERVICES, OR ANY DATA PROVIDED AS
A PART OF THE SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED
BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF STORESONLINE. IN ALL CASES ARISING
FROM EVENTS OCCURRING DURING THE TERM OF THIS AGREEMENT, WHETHER BASED UPON
TORT, CONTRACT, WARRANTY, INDEMNITY, CONTRIBUTION OR OTHERWISE, DAMAGES SHALL BE
LIMITED TO, AND DISTRIBUTOR AGREES NOT TO MAKE ANY CLAIM OR CLAIMS EXCEEDING,
TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), REGARDLESS OF HOW MANY CLAIMS
DISTRIBUTOR HAVE; PROVIDED, HOWEVER, THAT THE DOLLAR LIMITATION SET FORTH IN
THIS SENTENCE SHALL NOT APPLY TO ANY MONIES DUE TO DISTRIBUTOR IN CONNECTION
WITH ANY OF THE ACCOUNTS ESTABLISHED PURSUANT TO THIS AGREEMENT. IN ADDITION,
IN NO EVENT SHALL STORESONLINE BE LIABLE TO DISTRIBUTOR OR ANY RESELLER OR TO
ANY OTHER THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES
OR DAMAGES WHICH DISTRIBUTOR, SUCH RESELLER OR SUCH THIRD PARTY MAY INCUR OR
EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR UTILIZING
THE SERVICES, REGARDLESS OF WHETHER STORESONLINE HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN
PART, BY THE NEGLIGENCE OF STORESONLINE.
c. TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY DISTRIBUTOR AGAINST
STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES, AGENTS, SUCCESSORS
OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN TWO (2) YEARS OF THE FIRST OCCURRENCE GIVING RISE TO SUCH
CLAIM OR BE FOREVER BARRED. THIS
<PAGE>
PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT THE LIMITATION OF
STORESONLINE'S LIABILITY SET FORTH IN THIS PARAGRAPH 8 OR ELSEWHERE IN THIS
AGREEMENT.
d. DISCLAIMER. THE WARRANTIES AND CONDITIONS SET FORTH HEREIN AND THE
OBLIGATIONS AND LIABILITIES OF STORESONLINE HEREUNDER ARE IN LIEU OF, AND
DISTRIBUTOR HEREBY WAIVES, ALL EXPRESS AND IMPLIED WARRANTIES AND CONDITIONS,
INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT. IN NO EVENT SHALL STORESONLINE'S
LIABILITY FOR ANY CLAIM ASSERTED BASED ON A VIOLATION OF WARRANTY OR CONDITION
EXCEED THE AMOUNT PAID BY DISTRIBUTOR TO STORESONLINE FOR THE AFFECTED ITEM OF
SERVICES.
e. INDEMNIFICATION. DISTRIBUTOR SHALL INDEMNIFY, DEFEND AND HOLD
STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES AND AGENTS HARMLESS
FROM AND AGAINST ANY AND ALL CLAIMS, COSTS, CAUSES OF ACTION, EXPENSES AND
LIABILITIES, OF ANY KIND OR NATURE WHATSOEVER, INCLUDING REASONABLE ATTORNEYS'
FEES, ASSERTED BY ANY OF DISTRIBUTOR'S RESELLERS AND RESULTING FROM OR ARISING
OUT OF THIS AGREEMENT OR THE SERVICES RESOLD OR SUBLICENSED HEREUNDER, EXCEPT
FOR CLAIMS BY RESELLER(S) FOR AMOUNTS DUE IN CONNECTION WITH ANY OF THE
STOREFRONT ACCOUNTS ESTABLISHED PURSUANT TO THIS AGREEMENT.
9. DOCUMENTATION AND TRAINING. Provided that Distributor has met the
minimum performance standards set forth elsewhere in this Agreement,
StoresOnline shall, on a semi-annual basis, provide free-of-charge a one (1)
day training program for employees designated by Distributor at the
StoresOnline corporate headquarters. Additional training by StoresOnline
shall be made available to Distributor at StoresOnline's standard rates. All
expenses of the trainees under this Section 9 shall be borne solely by
Distributor.
10. DEFAULT.
a. DISTRIBUTOR'S DEFAULT. The failure by Distributor to make any
payment required hereunder or a material breach by Distributor of its
obligations hereunder shall constitute an event of default by Distributor. Upon
the occurrence of an event of default, StoresOnline shall provide Distributor
with written notice specifying the nature of such default. If Distributor has
not cured such default within thirty (30) days after receipt of such notice,
StoresOnline may, at its sole discretion, terminate this Agreement and/or seek
any other available remedies available at law or in equity; PROVIDED, HOWEVER,
that the cancellation of this Agreement shall not prevent Distributor from
reselling the Services (and sublicensing the software component thereof)
previously paid for by Distributor and sublicenses previously granted by
Distributor pursuant hereto shall not be affected by such termination.
b. STORESONLINE'S DEFAULT. The failure by StoresOnline to make any
payment required hereunder or a material breach by StoresOnline of its
obligations hereunder shall constitute an event of default by StoresOnline.
Upon the occurrence of an event of default by StoresOnline, Distributor or
Reseller shall provide StoresOnline with written notice specifying the nature of
such default. If StoresOnline fails to cure such default within thirty (30)
days after receipt of such notice, Distributor may, at its sole option,
terminate this Agreement.
c. INSOLVENCY. The commencement of any proceeding (voluntary or
involuntary) in bankruptcy or insolvency by or against either party hereto, or
the appointment (with or without the party's consent) of an assignee for the
benefit of creditors or a receiver with respect to either party hereto shall
constitute an event of default hereunder, and the non-defaulting party may elect
to terminate this Agreement immediately.
11. DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising under this
Agreement be resolved expeditiously, amicably, and at the level within each
party's organization that is most knowledgeable about the disputed issue. The
parties understand and agree that the procedures outlined in this Paragraph 11
are not intended to supplant the routine handling of inquiries and complaints
through informal contact with customer service representatives or other
designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "dispute" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as provided in subparagraph e. below, may be submitted to
arbitration, the parties shall first follow the informal and escalating
procedures set forth below.
(1) The complaining party will notify the other party in writing of
the dispute, and the non-complaining party will exercise good faith efforts to
resolve the matter as expeditiously as possible.
(2) In the event that such matter remains unresolved for thirty (30)
days after the delivery of the complaining party's written notice, a senior
representative of each party shall meet or confer within ten (10) business days
of a request for such a meeting or conference by either party to resolve such
matter.
(3) In the event that the meeting or conference specified in (2)
above does not resolve such matter, the senior officer of each party shall meet
or confer within ten (10) business days of the request for such a meeting or
conference by either party to discuss and agree upon a mutually satisfactory
resolution of such matter.
(4) If the parties are unable to reach a resolution of the dispute
after following the above procedure, or if either party fails to participate
when requested, the parties may proceed in accordance with subparagraph b.
below.
b. Except as provided in subparagraph e. below, any dispute arising under
this Agreement shall, after utilizing the procedures in subparagraph a., be
resolved by final and binding arbitration in Long Beach, California, before a
single arbitrator selected by, and in accordance with, the rules of commercial
arbitration of the American Arbitration Association. Each party shall bear its
own costs in the arbitration, including attorneys' fees, and each party shall
bear one-half of the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages as are
not prohibited by this Agreement and may, in addition and in a proper case,
declare rights and order specific performance, but only in accordance with the
terms of this Agreement.
d. Either party may apply to a court of general jurisdiction to enforce a
arbitrator's award, and if enforcement is ordered, the party against which the
order is issued shall pay the costs and expenses of the other party in obtaining
such order, including reasonable attorneys' fees.
e. Notwithstanding the provisions of subparagraphs a. and b. above, any
action by StoresOnline to enforce its rights under Paragraph 12e of this
Agreement or to enjoin any infringement of the same by Distributor may, at
StoresOnline's election, be commenced in the state or federal courts of
California, and Distributor consents to personal jurisdiction and venue in such
courts for such actions.
12. GENERAL.
a. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the Joint Marketing
and Promotion Agreement, dated of even date herewith, by and between
StoresOnline and the Distributor constitute the entire agreement between
StoresOnline and the Distributor and supersede all previous understandings,
negotiations and proposals, whether written or oral. This Agreement may not be
altered, amended or modified except by an instrument in writing signed by duly
authorized representatives of each party. In the event that any one or more
provisions contained in this Agreement should for any reason be held to be
unenforceable in any respect, such unenforceability shall not affect any other
provisions hereof, and this Agreement shall be construed as if such
unenforceable provision had not been contained herein.
b. FORCE MAJEURE. Neither party shall be liable to the other for delays
or failures to perform an obligation to the other hereunder if such delay or
failure to perform is due to any act of God, acts of civil or military
authority, labor disputes, fire, riots, civil commotion's, sabotage, war,
embargo, blockage, floods, epidemics, delays in transportation, inability beyond
StoresOnline's reasonable control to obtain necessary labor, materials or
manufacturing facilities, or when due to governmental restrictions, including
the inability of StoresOnline to obtain appropriate U.S. export license approval
or the subsequent suspension of same. In the event of any such delay or
failure, the parties shall have an additional period of time equal to the time
lost by reason of the foregoing in which to perform hereunder.
c. GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, without regard to principles of choice of
law.
d. ASSIGNMENT. Distributor shall not assign this Agreement or any rights
hereunder without the prior written consent of StoresOnline, which consent shall
not be unreasonably withheld, except that Distributor may assign this Agreement
without the consent of StoresOnline if such assignment is completed in
connection with the the sale of all or substantially all of the assets of
Distributor. StoresOnline may assign this Agreement to a subsidiary, affiliate
corporation or the purchaser of all or substantially all of StoresOnline's
assets.
e. DISCLOSURE OF INFORMATION. Distributor acknowledges that, in the
course of purchasing Services and meeting its obligations under this Agreement,
it will obtain information relating to the Services and to StoresOnline, which
is of a confidential and proprietary nature ("STORESONLINE PROPRIETARY
INFORMATION"). Such StoresOnline Proprietary Information may
<PAGE>
include, but is not limited to, trade secrets, know-how, inventions,
techniques, processes, programs, schematics, data, customer lists, financial
information and sales and marketing plans.
Distributor shall at all times during the term of this Agreement and for
three years after its termination, keep in confidence and trust from any person
or entity, all StoresOnline Proprietary Information and shall not disclose or
use such StoresOnline Proprietary Information without the prior written consent
of StoresOnline, unless compelled to disclose such StoresOnline Proprietary
Information by judicial or administrative process (including, without
limitation, in connection with obtaining the necessary approvals of this
Agreement and the transactions contemplated hereby of governmental or regulatory
authorities) or by other requirements of law. Upon termination of this
Agreement, Distributor shall promptly return to StoresOnline all StoresOnline
Proprietary Information under its control and all copies thereof.
Neither party hereto shall disclose the specific terms of this Agreement
to any third parties except as may be mutually agreed or as required by law or
the order of a court of competent jurisdiction.
The above limitations on disclosure of StoresOnline Proprietary
Information shall not apply to information which becomes publicly available
through no act of Distributor, is released by StoresOnline in writing with no
restrictions, is lawfully obtained by Distributor without breach of this
Agreement from third parties without obligations of confidentiality, is
previously known by Distributor without similar restrictions as shown by
documents in its possession prior to disclosure by StoresOnline or is
independently developed by Distributor.
f. COMPLIANCE WITH LAW. Distributor shall comply with all applicable
law the violation of which would have a material adverse effect on StoresOnline
or its business, including, without limitation, the export control laws of the
United States of America and prevailing regulations which may be issued from
time to time by the United States Department of Commerce and any export control
regulations of the United States and those countries involved in transactions
concerning the exporting, importing and re-exporting of Services purchased under
application of these terms and conditions. Distributor shall also comply with
the United States Foreign Corrupt Practices Act and shall indemnify StoresOnline
from violations of such act by Distributor. This provision shall survive any
termination or expiration of the Agreement.
g. EXERCISE OF REMEDIES. Any delay or omission by either party to
exercise any right or remedy under this Agreement shall not be construed to be a
waiver of any such right or remedy or any other right or remedy hereunder.
h. LIMITATION OF LIABILITY. NEITHER PARTY HERETO SHALL BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO
FAILURE TO PERFORM ITS OBLIGATIONS HEREUNDER.
i. HEADINGS. Headings contained in this Agreement are for convenience
only, are not a part of this Agreement, and do not in anyway interpret, limit or
amplify the scope, extent or intent of this Agreement or any of the provisions
hereof.
j. REGULATORY APPROVAL. Distributor warrants that the Services and the
Malls, when utilized with its own products, will comply with all applicable
industry and governmental standards and requirements. StoresOnline assumes no
responsibility or liability for these governmental and regulatory standards or
requirements, which liability and responsibility is assumed entirely by
Distributor. Upon request, StoresOnline will provide copies of regulatory
approvals to Distributor.
k. BRANDING; COPYRIGHT PROTECTION. StoresOnline shall have the right
to place a "Powered by Netgateway in association with BuySellBid.com" or
"Powered by StoresOnline in association with BuySellBid.com" byline in a
prominent mutually agreed upon location on each storefront site. Each screen
of the Malls shall display a prominent copyright notice protecting against
third party usage in a manner to be determined by the agreement of the
parties. The parties hereto agree that all copyright interests shall be
determined as a matter of law and the placement or absence of a copyright
notice shall not be an acknowledgement as to the ownership of a copyright
interest as between the parties. In the case of Malls with screens or pages
designed by or paid for by Distributor, Distributor shall retain rights to
such screens or pages. With respect to any such Mall, Distributor shall be
responsible for all content to be included in such Mall including, without
limitation, legal disclaimers and other information; provided, however, that
StoresOnline may license to Distributor all such content so long as proper
attribution is made on the Mall as to such license and the ownership interest
in any such content. Notwithstanding the absence of any copyright notice of
Stores Online on Distributor's Malls, in the case of layouts or screens the
copyrights of which belong to Stores Online, Distributor hereby recognizes
StoresOnline's ownership of such copyrights, including any Mall layouts
belonging to Stores Online that do hold such copyright notices.
l. PUBLICITY. StoresOnline (or its parent company, Netgateway, Inc.)
shall have the right to inform its customers and the public that StoresOnline
has entered into this Agreement with Distributor. Each party may use the
other's name or the name of its customers in marketing the Services and the
development of the Malls and may link to each other's websites, but neither
party will perform any actions which will harm the other's or its customers name
and reputation.
m. NOTICES. Any notice required in connection with this Agreement
shall be given in writing and shall be deemed effective upon personal delivery
or three business days after deposit in the United States mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party. All facsimile notices shall be confirmed by written
notice mailed, as provided above, within five (5) days of the date of the
facsimile is sent. Once confirmed, the notice shall be effective as of the date
of the facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date set forth herein.
STORESONLINE.COM, INC., A CALIFORNIA CORPORATION
By /s/ David Bassett-Parkins
-------------------------------------------------
Name: David Bassett-Parkins
---------------------------------------
Its: COO
---------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
NETGATEWAY, A NEVADA CORPORATION
By /s/ David Basset-Parkins
------------------------------------------------
Name: David Basset-Parkins
---------------------------------------
Its: COO
---------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
BUYSELLBID, INC., A DELAWARE______ CORPORATION
By /s/ Jay S. Shepard
--------------------------------------------------
Name: Jay S. Shepard
---------------------------------------
Its: Chief Executive Officer
---------------------------------------
Address for Notices:
Address: 921 14th Ave.
Longview, WA 98632
Telephone: 360-425-5000
Facsimile: 360-636-5051
E-mail Address: [email protected]
Company URL: buysellbid.com
Sales Representative: Valery Gilbert [email protected]
Technical Contact: Micheal Mckenna
Telephone: 619-457-6800 ext 110
E-mail Address: [email protected]
<PAGE>
ADDENDUM
NAME OF DISTRIBUTOR BuySellBid.com, Inc.
---------------------------
TYPE OF ENTITY: Delaware Corp.
-------------------------
DATE OF AGREEMENT: 8-25-99
----------------------
DESCRIPTION OF DISTRIBUTOR'S BUSINESS: Distributes malls to radio/t.v. stations
----------------------------------------
STANDARD FEATURE SET
CATALOGS
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds and Ounces
- - Sending Methods: Internet, Fax/Mail and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: United States, Canadian Provinces and
World Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
- - Shipping Formula Functions: Minimum, Maximum and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable and Optional
- - Users and Passwords
CATEGORIES
- - Unlimited Categories
- - Full Description
- - Image
PRODUCTS
- - Base Item Number
- - Description: Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-Taxable Products
- - Weight
- - Category
- - Multiple Product Options (i.e., Color, Size)
- - Multiple Product Option Items (i.e., Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links to Related Items
- - Links to other URL's
- - Preview product pages
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
ORDERS
- - E-mail notification of new orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
STORESONLINE POINT OF SALE
- - Multiple Merchant Numbers
- - Automatic authorization of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
- - Freeze and Thaw Transactions
STORESONLINE HOSTING
- - Home Page Builder
- - Unique URL
- - 10 MB Free
- - Virtual hosting of existing domain names
- - Professionally designed templates
- - Customize your own templates
STORESONLINE SEARCH
- - Full Text Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
PRICING FOR STOREFRONT SERVICES:
Up to 25 Products:
Monthly Base Wholesale Price: [**REDACTED**]
Suggested Retail Price:
26 to 50 Products:
Monthly Base Wholesale Price: [**REDACTED**]
Suggested Retail Price:
51 to 100 Products:
Monthly Base Wholesale Price: [**REDACTED**]
Suggested Retail Price:
101 to 300 Products:
Monthly Base Wholesale Price: [**REDACTED**]
Suggested Retail Price:
301 to 1000 Products:
Monthly Base Wholesale Price: [**REDACTED**]
Suggested Retail Price:
One Time Store Set-up Fee:
Up to 100 products
Base Wholesale Price: $ [**REDACTED**]
Suggested Retail Price:
Additional Products may be included at [**REDACTED**] per product
Scanning: [**REDACTED**] per image (first 10 images [**REDACTED**])
<PAGE>
MALL DEVELOPMENT SERVICES AND PRICES
1. DEVELOPMENT. StoresOnline shall design and develop one or more
on-line Malls, to be branded around the name, brand and image of each of
Distributor's reseller media partners. The Malls will include appropriate URL
addresses, four to six featured products and stores from various
Distributor/reseller and third party advertisers, additional
Distributor/reseller and non-Distributor/non-reseller advertiser stores and
products catalogued with text references, and links to top-tier eCommerce sites.
The Malls will also include an appropriate search engine, commerce
functionality, banner and other appropriate advertising space and such other
features as the parties shall mutually agree. The Malls will be capable of
cataloguing stores independently or in conjunction with all other Malls
developed hereunder, if any, as well as other malls which belong to the
StoresOnline electronic mall network. Distributor agrees and understands that
the storefronts of all end-user customers may be placed in one or more
electronic malls developed and/or operated by StoresOnline.
2. PRICING. Distributor shall pay a one-time development fee for such
Mall to be developed hereunder in an amount to be determined by StoresOnline
and Distributor on a case by case.
3. ADDITIONAL DESIGN WORK. Any additional design work that is not
covered by this Agreement but required by a particular reseller in connection
with the development of on or more of the Malls shall be bid by StoresOnline,
and StoresOnline shall not be required to complete any such work unless its bid
has been accepted in writing by reseller.
<PAGE>
EXHIBIT A
STANDARD LICENSE AGREEMENT TERMS
1. LICENSE. This License allows you to use any software associated
with the provision of the Services.
2. RESTRICTIONS. You may not use, copy, modify or transfer the
program, or any copy, modification or merged portion, in whole or in part,
except as expressly provided for in this License. If you transfer possession of
any copy, modification or merged portion of the program to another party, your
License is automatically terminated.
3. TERM. The License is effective until terminated. You may
terminate it at any other time by notifying Distributor of your intent to do so.
The License will also terminate upon the occurrence of certain events set forth
elsewhere in this Agreement. Upon such termination, you agree to destroy the
program together with all copies, modifications and merged portions in any form.
4. EXPORT LAW ASSURANCES. You agree that neither the pogrom nor any
direct product thereof is being or will be shipped, transferred or re-exported,
directly or indirectly, into any country prohibited by the US Export
Administration Act and the regulations thereunder or will be used for any
purpose prohibited by the Act.
5. LIMITED WARRANTY. The program is provided "AS IS" without
warranty of any kind, either expressed or implied, including, but not limited
to, the implied warranties of merchantability and fitness for a particular
purpose. The full text of the warranty is provided in the user manual.
6. LIMITED LIABILITY. In no event will StoresOnline be liable to you
for any damages, including any lost profits, lost savings or other incidental or
consequential damages arising out of the use of inability to use such program
even if StoresOnline has been advised of the possibility of such damages, or for
any claim by any other party.
7. GENERAL. If you are a Government end-user, this License conveys
only "RESTRICTED RIGHTS," and in its use, disclosure and duplication are subject
to Federal Acquisition Regulations, subparagraph (c)(1)(11) 52.227-7013. (See
U.S. Government End-User provisions in manual.) This License will be construed
under the laws of the State of California, except for that body of law dealing
with conflicts of law. If any provision of the License shall be held by a court
of competent jurisdiction to be contrary to law, that provisions shall be
enforced to the maximum extent permissible, and the remaining provisions of this
License shall remain in full force and effect.
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
BUYSELLBID.COM, INC.
JOINT MARKETING AND PROMOTION AGREEMENT
Date: August 25, 1999
Companies: Netgateway, a Nevada corporation; and StoresOnline.com, Inc., a
California corporation
Contact: Hanh M. Ngo, SVP, Operations
Address: 300 Oceangate
Long Beach, CA 90802
Telephone: (562) 308-0010
Fax: (562) 308-0021
E-mail Address: [email protected]
Web Address: www.netgateway.net
AGREEMENT between BuySellBid.com, Inc., a Delaware corporation,
sometimes doing business as "InXsys Broadcast Networks" (referred to herein
as "BuySellBid"); and Netgateway, a Nevada corporation, and StoresOnline.com,
Inc., a California corporation (jointly referred to herein as "Netgateway"):
Recitals
A. Netgateway owns, operates and maintains an Internet storefront
building services packages consisting of various services delivered through
its proprietary software. Netgateway operates a web site to promote its
products and services (www.storesonline.com, hereafter referred to as the
"Netgateway Site"), and it also designs, develops, owns and operates on-line
"malls" whereby its clients may market products and services on-line either
independently or in conjunction with other malls belonging to Netgateway's
mall network.
B. BuySellBid has developed and operates a multimedia classified and
personals ad service available to on-line users (the "BuySellBid Services").
C. The parties desire to cooperate for the purpose of complementing and
enhancing the range of products and services provided by each.
Therefore, in consideration of the promises set forth herein, the
parties hereby agree as follows:
1) PROMOTION OF BUYSELLBID SERVICES. During the term of this Agreement,
Netgateway shall introduce and recommend the BuySellBid Services to each of
its current and future Web clients to encourage such clients to use the
BuySellBid Services on the Web sites provided by Netgateway. In this
connection, Netgateway shall provide to its clients such marketing materials
and otherwise take such actions to promote the BuySellBid Services as
BuySellBid shall reasonably request.
2) EXCLUSIVITY. During the term of this Agreement, Netgateway shall make
commercially reasonable efforts to promote the use of the BuySellBid
Services by its clients and shall not (a) use, maintain links to, or otherwise
reference on the Netgateway Site any services or firms providing products or
services in competition with the BuySellBid Services, or (b) introduce or
encourage any use of or links or references to such competing firms or
services on sites maintained or operated for or by its clients.
3) DISPLAY; PRIVATE LABEL; CO-BRANDING; PUBLICITY. Netgateway shall promote
the BuySellBid Services on the Netgateway Site and on the sites of its
clients which utilize such services in a manner to be agreed upon by the
parties. The parties shall private label the BuySellBid Services on the
Netgateway Site and on the sites of its clients which utilize such services,
as applicable. On the Netgateway Site and on the sites of its clients that
utilize the BuySellBid Services, Netgateway shall cause a legend to be
prominently displayed stating that said services are "Powered by BuySellBid
technology in association with Netgateway" or such other words to that effect
as the parties may select, and BuySellBid shall be listed among Netgateway's
affiliates or partners. The parties shall cooperate in issuing such press
releases and similar media statements respecting their affiliation hereunder
and the availability of the BuySellBid Services on sites maintained by
Netgateway as either party may deem appropriate from time to time. BuySellBid
and Netgateway shall have the right to inform their customers and the public
regarding their affiliation hereunder. Each party may use the other's name or
the name of its customers in marketing their respective products and services
and may link to each other's websites, but neither party will perform any
actions that will harm the other's or its customers' name and reputation.
4) COMPENSATION AND REPORTING. BuySellBid shall remit to Netgateway
[**REDACTED**] of the Net Revenues generated from links placed on websites of
Netgateway and its clients after the date of this Agreement, calculated in
accordance with BuySellBid's standard fee schedule as in effect from time to
time, which fee schedule shall be subject to change at the sole discretion of
BuySellBid. A copy of BuySellBid's current fee schedule is attached hereto as
Exhibit A; BuySellBid shall provide Netgateway with copies of all revised fee
schedules. For purposes of this paragraph, Net Revenues shall equal all
membership, listing and user fees received from classified and on-line
personals advertisements, less credit card processing fees, customer refunds,
taxes, third-party commissions, third party content rental fees, and any
shipping, insurance, discounts, or similar charges incurred in connection
therewith. Said payment shall be delivered to Netgateway not later than 45
days after the last day of the month in which said revenues were received by
BuySellBid, together with a report setting forth in reasonable detail by
client the amount and sources of said revenues. Netgateway may inspect
BuySellBid's records regarding said revenues upon reasonable request.
5) RESPONSIBILITY. The relationship of the parties shall be that of
independent contractors, and nothing contained herein shall be construed to
create a joint venture, agency or partnership relation between them.
<PAGE>
6) DURATION AND TERMINATION OF THE AGREEMENT. This Agreement shall commence
as of the date hereof and continue for an initial term of six months. Such
term shall be automatically extended for successive terms of six months each
unless either party notifies the other, not les than 30 days prior to the
expiration of the then-current term, of its intentions not to renew.
7) CONFIDENTIALITY. Neither party shall disclose any proprietary information
regarding the other that may come into its possession, including without
limitation, business strategies, product plans, financial information,
partner information, marketing plans, personnel information and technology
research, without prior written permission. This clause shall survive by 12
months the termination of this Agreement.
8) GOVERNING LAW. This Agreement shall be deemed to have been made in, and
shall be construed pursuant to the laws of the state of Washington and the
United States.
9) LIMITATION OF LIABILITY. BUYSELLBID AND ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO NETGATEWAY FOR ANY
LOSS OR DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS,
INTERRUPTIONS, OR MALFUNCTIONS REGARDING THE BUYSELLBID SERVICES FOR ANY
REASON WHATSOEVER, WHETHER PROVIDED TO NETGATEWAY OR ANY OF ITS CLIENTS,
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO FAILURE TO PERFORM ITS OBLIGATIONS
HEREUNDER.
10) DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising under this
Agreement be resolved expeditiously, amicably, and at the level within
each party's organization that is most knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in
this paragraph are not intended to supplant the routine handling of
inquiries and complaints through informal contact with customer service
representatives or other designated personnel of the parties.
Accordingly, for purposes of the procedures set forth in this paragraph,
a "dispute" is a disagreement that the parties have been unable to
resolve by the normal and routine channels ordinarily used for such
matters. Before any dispute arising under this Agreement may be
submitted to arbitration, the parties shall first follow the informal
and escalating procedures set forth below.
(1) The complaining party will notify the other party in writing of the
dispute, and the non-complaining party will exercise good faith efforts
to resolve the matter as expeditiously as possible.
(2) In the event that such matter remains unresolved for 30 days after
the delivery of the complaining party's written notice, a senior
representative of each party shall meet or confer within ten (10)
business days of a request for such a meeting or conference by either
party to resolve such matter.
(3) If the event that the meeting or conference specified in (2) above
does not resolve such matter, the senior officer of each party shall
meet or confer within ten (10) business days of the request for such a
meeting or conference by either party to discuss and agree upon a
mutually satisfactory resolution of such matter.
(4) If the parties are unable to reach a resolution of the dispute after
following the above procedure, or if either party fails to participate
when requested, the parties may proceed in accordance with subparagraph
b. below.
b. Any dispute arising under this Agreement shall, after utilizing the
procedures in subparagraph a., be resolved by final and binding arbitration
in Seattle, Washington, before a single arbitrator selected by, and in
accordance with, the rules of commercial arbitration of the American
Arbitration Association. Each party shall bear its own costs in the
arbitration, including attorneys' fees, and each party shall bear one-half of
the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages as are
not prohibited by this Agreement and may, in addition and in a proper case,
declare rights and order specific performance, but only in accordance with
the terms of this Agreement.
d. Either party may apply to a court of general jurisdiction to enforce
the arbitrator's award, and if enforcement is ordered, the party against
which the order is issued shall pay the costs and expenses of the other party
in obtaining such order, including reasonable attorneys' fees.
11) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all previous understandings, negotiations and proposals, whether
written or oral; provided, that the parties acknowledge the execution by the
parties of that certain Distributor Mall and Storefront Agreement of even
date herewith. This Agreement may not be altered, amended or modified except
by an instrument in writing signed by duly authorized representatives of each
party. In the event that any one or more provisions contained in this
Agreement should for any reason be held to be unenforceable in any respect,
such unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such unenforceable provision had not been
contained herein.
12) ASSIGNMENT. Neither party may assign this Agreement or any rights
hereunder without the prior written consent of the other.
13) NOTICES. Any notice required in connection with this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or
three business days after deposit in the United States mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice
at the address indicated below such party's signature line on this Agreement
or at such other address as such party may designate
<PAGE>
by ten (10) days' advance written notice to the other party. All facsimile
notices shall be confirmed by written notice mailed, as provided above,
within five (5) days of the date of the facsimile is sent. Once confirmed,
the notice shall be effective as of the date of the facsimile.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date written above by their duly authorized representatives.
BUYSELLBID.COM., INC.
/s/ Jay S. Shepard
- -------------------------------
By:
Title: CEO
NETGATEWAY
/s/ David Basset-Parkins
- -------------------------------
By:
Title:
STORESONLINE.COM, INC.
/s/ David Basset-Parkins
- -------------------------------
By:
Title:
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
StoresOnline.com
CABLE RESELLER AND MALL AGREEMENT
CableONE, Inc.
THIS CABLE RESELLER AND MALL AGREEMENT (the "AGREEMENT") is made and
entered into as of the date set forth on the Addendum attached hereto and by
this reference made a part hereof (the "ADDENDUM"), between and among
STORESONLINE.COM, INC., a California corporation, and NETGATEWAY, a Nevada
corporation, on the one hand (collectively, "STORESONLINE"), and the Reseller
identified on the Addendum, on the other hand ("RESELLER").
R E C I T A L S
A. Reseller is a cable television operator, engaged in the business
described on the Addendum.
B. StoresOnline owns, operates and maintains an Internet
storefront-building services package comprised of certain services delivered
through StoresOnline's proprietary software, the standard features of which
are more particularly described on the Addendum (the "SERVICES").
C. The Services are delivered through the Internet and may be made
available through a private, branded electronic exchange to be developed for
Reseller.
D. StoresOnline desires to (i) sell and license the Services to Reseller
for Reseller's resale and sublicense to end-user customers or, with the
written permission of StoresOnline, to other resellers and (ii) develop
certain on-line mall(s) to be branded around Reseller's name, brand and image
(the "MALLS").
E. Reseller desires to purchase and license the Services for resale to
end-user customers and shall use its unique resources to promote the Services
as hereinafter set forth.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. SERVICES.
a. SCOPE OF AGREEMENT. This Agreement covers (i) the purchase,
licensing, promotion and sale of the Services and (ii) the design and
development of the Malls pursuant to and in accordance with the terms and
conditions set forth on the Addendum.
b. LICENSE GRANT; SALE OF SERVICES. StoresOnline grants to
Reseller, subject to the terms and conditions of this Agreement, the
non-exclusive right and license to resell and sublicense (in the case of
software products), the Services to Reseller's end-user customers or, with
the written permission of StoresOnline, to other resellers. In the case of
software products, Reseller acknowledges that such software is and will
remain proprietary to StoresOnline, is copyrighted and that Reseller acquires
no right, title or interest in or to any such software by this Agreement.
Reseller agrees to sublicense the Services hereunder pursuant to the Standard
License Agreement Terms set forth on Exhibit A hereto, and to cause each of
its customers or other resellers to sublicense the Services pursuant to such
terms, which terms, in the case of a reseller, shall be accepted upon store
set-up and, in the case of an end-user customer, shall be accepted as part of
the storefront registration process described below.
c. PRODUCT NAME. It is expressly agreed that the ownership and
all right, title and interest in and to the Services and any trademark, trade
name, patent or copyright relating to the Services is and will remain vested
solely in StoresOnline; PROVIDED, HOWEVER, that as permitted by this
Agreement, Reseller may use any existing or future trademark, trade name,
patent or copyright relating to the Services, such use to be limited to
promoting, selling, installing or maintaining the Services; and PROVIDED,
FURTHER, that as permitted by this Agreement, the Services may be branded
around Reseller's name, brand and image. Reseller shall use its best efforts
during the term of this Agreement to protect StoresOnline's trademarks, trade
names, patents and copyrights, but shall not be required to instigate legal
action against third parties for any infringement thereof. Reseller shall
notify StoresOnline of any infringement as soon as practicable after becoming
aware of any such infringement. Reseller shall not use, directly or
indirectly, in whole or in part, StoresOnline's name or any other trade name
or trademark that is owned or used by StoresOnline in connection with any
product other than StoresOnline's products, without the prior written consent
of StoresOnline.
d. MALL DEVELOPMENT. StoresOnline shall develop the Malls in
accordance with the terms and conditions set forth herein and on the
Addendum. The Malls may be branded around Reseller's name, brand and image
and shall link to the Reseller's branded StoresOnline solution. The Malls
will include appropriate URL addresses, four to six featured products and
stores from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text
references, and links to top-tier eCommerce sites. The Malls will also
include an appropriate search engine, commerce functionality, banner and
other appropriate advertising space and such other features as the parties
shall mutually agree. The Mall will be capable of cataloguing stores
independently or in conjunction with all other Malls developed hereunder, if
any, as well as other malls which belong to the StoresOnline electronic mall
network. Reseller agrees and understands that the storefronts of its
end-user customers may be placed in one or more electronic malls developed
and/or operated by StoresOnline.
2. TERM OF AGREEMENT. The term of this Agreement shall commence as of
the execution hereof and continue for an initial term of one (1) year.
Such term shall automatically be extended for additional one year terms
thereafter unless either party notifies the other, not less than sixty (60)
days prior to the expiration of the applicable term, of its intention not to
renew the Agreement.
a. Notwithstanding the foregoing, this Agreement may be terminated
in accordance with the provisions of Section 10.
b. Termination of this Agreement shall not relieve either party of
any obligations incurred prior to termination, including outstanding delivery
and payment obligations and other contractual commitments herein or mutually
agreed to from time to time by the parties in writing. The obligations set
forth in Sections 3d, 6, 8, 10a, 12c, 12e, 12f and 12h are expressly intended
to survive termination of this Agreement.
3. PRICES AND TAXES.
a. PRICES FOR SERVICES. StoresOnline shall charge Reseller the
one-time Store Set-up Price set forth on the Addendum for each electronic
storefront that Reseller instructs StoresOnline to place in the Mall.
StoresOnline shall charge Reseller the applicable Monthly Base Wholesale
Price set forth on the Addendum for each active storefront. Unless Reseller
elects to bill its customers directly in accordance with paragraph 6.c
hereof, the Monthly Base Wholesale Price shall be offset by StoresOnline
against payments due to Reseller in accordance with paragraph 6.b hereof.
b. PRICE ADJUSTMENTS FOR SERVICES. The prices for the Services are
subject to change by StoresOnline at any time, and shall become effective
ninety (90) days after written notification of such change to Reseller.
c. RETAIL PRICES FOR SERVICES. On or before the first day of each
month, Reseller shall provide StoresOnline with a list of the Reseller prices
charged for each class of Accounts or for each Account (as hereinafter
defined).
d. PRICES FOR MALL DEVELOPMENT; MALL REVENUE SPLIT. All prices
for Mall design, development and operation provided hereunder shall be as set
forth on the Addendum. It is anticipated that the Malls will generate
multiple revenue streams. Reseller and StoresOnline shall split the net
revenue generated from all such revenue sources on a [**REDACTED**] basis. Such
revenue sources to be split shall include, but are not limited to: (i)
eCommerce advertisers provided by StoresOnline; (ii) the pro rata share of
Mall banner advertising attributable to Reseller; (iii) click-through revenue
from eTailer sales and (iv) revenue generated from featured product sales.
The parties hereto shall mutually agree to pricing in the event advertising
space is sold on a straight-buy basis.
e. TAXES. All prices for any services or products supplied
hereunder are exclusive of any federal, state or local sales, use, excise, AD
VALOREM or personal property taxes levied, or any fines, forfeitures or
penalties assessed in connection therewith, as a result of this Agreement or
the installation or use of services or products hereunder (collectively, but
exclusive of taxes based upon StoresOnline's income, "Taxes"). Reseller or
Reseller's customers, as applicable, shall pay any and all such Taxes, or
StoresOnline may pay such Taxes for Reseller's account or Reseller's
customers' account, in which case Reseller shall be obligated to reimburse
StoresOnline for amounts so paid. Any such Taxes which are charged to or
payable by StoresOnline will be invoiced to and paid by Reseller in the
manner set forth in Section 6 below. In the event that Reseller directly
invoices its customers pursuant to paragraph 6.c hereof, Reseller shall be
solely responsible for the collection and payment of any such Taxes.
In the event that Reseller requests that StoresOnline arrange for the
installation of high speed telecommunications services necessary for
Reseller's
<PAGE>
use, such services will be maintained in StoresOnline's name or Reseller's
name, as determined by StoresOnline in its sole discretion. In the event
that such services are maintained in the name of StoresOnline, Reseller shall
promptly remit payment to StoresOnline for all charges in connection with the
installation and use thereof. STORESONLINE SHALL NOT BE LIABLE TO RESELLER
FOR ANY FAILURE, FAULT, DELAY, INTERRUPTION OR LOSS OF TELECOMMUNICATIONS
SERVICES EXCEPT TO THE EXTENT CAUSED BY STORESONLINE'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
4. PROMOTION. Reseller shall promote the Mall and the Services by
cablecasting two thirty second television commercials provided to Reseller by
StoresOnline. In the event Reseller elects to produce additional
commercials, it shall do so at its own expense and must receive
StoresOnline's approval prior to cablecasting such commercials, which
approval shall not be unreasonably withheld. All commercials promoting the
services shall be cumulatively cablecast by Reseller a minimum of 400 times
per broadcast month, in each broadcast market where a Mall has been launched
and/or the Services are being offered by Reseller to its subscribers..
Reseller shall use its best efforts to ensure that the commercials are placed
in even rotations on a variety of its cable television networks.
5. CUSTOMER ACCOUNTS.
a. CUSTOMER ACCOUNT REGISTRATION PROCESS. The Services provided
hereunder include an online registration process that Reseller and its
customers will use to establish storefront accounts with StoresOnline (the
"ACCOUNTS"). In order to establish an Account, Reseller's customers must
complete an on-line registration process in accordance with the terms set
forth on the StoresOnline website. At the option of the customer,
registration may also be completed non-electronically. To establish an
Account, Reseller's customers must also provide credit card information and
authorize the payment of fees for Services on a monthly basis in advance.
The general terms and conditions for the use of Accounts shall be posted from
time to time on the StoresOnline web site, or in the event that StoresOnline
establishes an electronic exchange for Reseller, such information will be
posted on Reseller's exchange. The terms and conditions as posted shall, in
all events and at all times, be binding upon the Reseller and its customers
who establish Accounts. The terms and conditions governing such Accounts may
be amended from time to time by StoresOnline in its sole discretion.
b. CONTINUATION OF CUSTOMER ACCOUNTS. Continuation of each
customer Account is subject to the timely payment of the monthly fees
associated with such Accounts, and failure to do so shall constitute grounds
for StoresOnline to cancel and terminate an Account.
6. BILLING AND PAYMENT TERMS.
a. INVOICING FOR SERVICES. In the event Reseller requests that
StoresOnline invoice Reseller's customers directly, StoresOnline shall
electronically invoice Reseller's customers and directly charge against the
credit card accounts provided by such customers for such purpose during the
registration process for the retail price of the Services charged by
Reseller. All fees due from customers shall be paid in advance and are due on
the first day of each month. In preparing the invoices and charging against
the applicable credit cards, StoresOnline shall use the most recent Reseller
retail prices provided to StoresOnline by Reseller pursuant to Section 3c
hereof for the Accounts invoiced.
b. PAYMENT AND COLLECTION FOR SERVICES. StoresOnline shall
collect the monthly fees set by Reseller from Reseller's customers and, after
deducting any monthly fees and expenses to which it is entitled hereunder,
shall remit the balance to Reseller on a monthly basis, together with a
statement setting forth the amounts collected, the amounts deducted and the
total amount remitted. In the event payment is not received by StoresOnline
within the specified time, an additional late charge of one and one half
percent (1.5%) of the past due amount will be assessed for each thirty (30)
days outstanding, prorated on a daily basis. All payments for Services shall
be made in United States dollars.
c. DIRECT RESELLER BILLING FOR SERVICES. Reseller may invoice its
customers directly for the Services provided hereunder. In the event that
Reseller chooses to bill its customers directly for the Services, Reseller
shall remit directly to StoresOnline the applicable Monthly Wholesale Price
for each active storefront maintained pursuant to this Agreement. All such
fees shall be paid in advance and are due on the first day of each month.
d. BILLING FOR MALL RELATED CHARGES; ADVERTISING AND RELATED
REVENUES. StoresOnline shall invoice Reseller directly for all charges due
hereunder in connection with the design, development and operation of the
Malls, which charges shall be payable in accordance with the Addendum. All
revenues generated from the Malls (including advertising and related
revenues) which are required to be split between StoresOnline and Reseller
pursuant to paragraph 3(d) hereof shall be invoiced and collected by
StoresOnline. StoresOnline shall thereafter forward all amounts due, if any,
to Reseller (net 30 days) at the address provided on the signature page
hereto, together with a statement setting forth the total amount collected,
the amounts payable to Reseller and the total amount remitted.
7. REAL TIME PAYMENT PROCESSING. In the event that a customer wishes
to use the StoresOnline real-time credit card payment processing option, such
customer must establish a customer account with an FDIC network bank and must
open an account with a participating credit-card processor.
8. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
THERE ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND DISCLAIMS ANY
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
WARRANTIES OF THE CORRECTNESS, ACCURACY, PRECISION, TIMELINESS OR
COMPLETENESS OF ANY INFORMATION OR SERVICES PROVIDED HEREUNDER.
b. LIMITATION OF LIABILITY. STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO RESELLER OR TO ANY
THIRD PARTY FOR ANY LOSS OR DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING
FROM DELAYS OR INTERRUPTIONS OF SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE
DEFECTS OR DIFFICULTIES, STORMS, STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS
FAILURES, OR OTHER CAUSES OVER WHICH STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES OR AGENTS AGAINST WHOM LIABILITY IS SOUGHT, HAVE NO
REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR INDIRECT, RESULTING FROM
INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS, OMISSIONS OR ERRORS IN
THE TRANSMISSION OR DELIVERY OF THE SERVICES, OR ANY DATA PROVIDED AS A PART
OF THE SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY
THE NEGLIGENCE OR WILLFUL MISCONDUCT OF STORESONLINE. IN ALL CASES ARISING
FROM EVENTS OCCURRING DURING THE TERM OF THIS AGREEMENT, WHETHER BASED UPON
TORT, CONTRACT, WARRANTY, INDEMNITY, CONTRIBUTION OR OTHERWISE, DAMAGES SHALL
BE LIMITED TO, AND RESELLER AGREES NOT TO MAKE ANY CLAIM OR CLAIMS EXCEEDING
TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), REGARDLESS OF HOW MANY CLAIMS
RESELLER MAY HAVE; PROVIDED, HOWEVER, THAT THE DOLLAR LIMITATION SET FORTH IN
THIS SENTENCE SHALL NOT APPLY TO MONIES DUE TO RESELLER IN CONNECTION WITH
ANY OF RESELLER'S ACCOUNTS ESTABLISHED PURSUANT TO THIS AGREEMENT. IN
ADDITION, IN NO EVENT SHALL STORESONLINE BE LIABLE TO RESELLER OR TO ANY
THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES WHICH RESELLER OR SUCH THIRD PARTY MAY INCUR OR EXPERIENCE ON ACCOUNT
OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR UTILIZING THE SERVICES,
REGARDLESS OF WHETHER STORESONLINE HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN PART, BY THE
NEGLIGENCE OF STORESONLINE.
c. TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY RESELLER AGAINST
STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES, AGENTS,
SUCCESSORS OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED
BREACH THEREOF, SHALL BE COMMENCED WITHIN TWO (2) YEARS OF THE DATE ON WHICH
THE RESELLER KNEW OR SHOULD HAVE KNOWN OF THE FIRST OCCURRENCE GIVING RISE TO
SUCH CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE
AFFECT THE LIMITATION OF STORESONLINE'S LIABILITY SET FORTH IN THIS PARAGRAPH
8 OR ELSEWHERE IN THIS AGREEMENT.
d. DISCLAIMER. THE WARRANTIES AND CONDITIONS SET FORTH HEREIN AND
THE OBLIGATIONS AND LIABILITIES OF STORESONLINE HEREUNDER ARE IN LIEU OF, AND
BUYER HEREBY WAIVES, ALL EXPRESS AND IMPLIED WARRANTIES AND CONDITIONS,
INCLUDING, WITHOUT LIMITATION, THOSE OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IN NO EVENT SHALL STORESONLINE'S LIABILITY FOR ANY CLAIM
ASSERTED BASED ON A VIOLATION OF WARRANTY OR CONDITION
<PAGE>
EXCEED THE AMOUNT PAID BY RESELLER TO STORESONLINE FOR THE AFFECTED ITEM OF
SERVICES.
e. INFRINGMENT. StoresOnline will indemnify and hold Reseller
harmless from and against any claim by third parties pertaining to the
infringement of U.S. copyrights, trademarks or patents arising solely from
Reseller's use of any of computer programs or software products utilized by
StoreOnline to provide the Services as authorized hereunder, provided that
such computer programs or software products have not been altered, revised or
modified by Reseller in a manner that causes the alleged infringement, and
further provided that: (i) Reseller promptly notifies StoresOnline in
writing of such claim; (ii) StoresOnline will have sole control of the
defense of any action on such claim and of all negotiations for its
settlement or compromise; (iii) Reseller cooperates with StoresOnline in
every reasonable way to facilitate the settlement or defense of such claim;
and (iv) should such Services become or, in StoresOnline's opinion, be likely
to become, the subject of an infringement claim, Reseller will permit
StoresOnline, at StoresOnline's expense, to (1) procure for Reseller the
right to continue using such Services, or (2) replace or modify the same to
become functionally equivalent yet non-infringing, or (3) upon the failure of
(1) and (2) above, terminate, without penalty, Reseller's use of the affected
Services, in which event StoresOnline will refund to Reseller on a pro-rata
basis any prepaid amounts related thereto. Notwithstanding the foregoing,
StoresOnline shall not be liable to indemnify Reseller for any claims of
infringement by third parties relating in any manner to the contents of the
Mall or any of the third party merchants' storefronts contained therein
provided by Reseller or any of its end-user customers.
9. DOCUMENTATION AND TRAINING. Provided that Reseller has met the
minimum performance standards set forth elsewhere in this Agreement,
StoresOnline shall, on a semi-annual basis, provide free-of-charge a one (1)
day training program for employees designated by Reseller at the StoresOnline
corporate headquarters. Additional training by StoresOnline shall be made
available to Reseller at StoresOnline's standard rates. All expenses of the
trainees under this Section 9 shall be borne solely by Reseller.
10. DEFAULT.
a. RESELLER'S DEFAULT. The failure by Reseller to make any
payment required hereunder or a material breach by Reseller of its
obligations hereunder shall constitute an event of default by Reseller. Upon
the occurrence of an event of default, StoresOnline shall provide Reseller
with written notice specifying the nature of such default. If Reseller has
not cured such default within thirty (30) days after receipt of such notice,
StoresOnline may, at its sole discretion, terminate this Agreement and/or
seek any other available remedies available at law or in equity; PROVIDED,
HOWEVER, that the cancellation of this Agreement shall not prevent Reseller
from reselling the Services (and sublicensing the software component thereof)
previously paid for by Reseller and sublicenses previously granted by
Reseller pursuant hereto shall not be affected by such termination.
b. STORESONLINE'S DEFAULT. The failure by StoresOnline to make any
payment required hereunder or a material breach by StoresOnline of its
obligations hereunder shall constitute an event of default by StoresOnline.
Upon the occurrence of an event of default by StoresOnline, Reseller shall
provide StoresOnline with written notice specifying the nature of such
default. If StoresOnline fails to cure such default within thirty (30) days
after receipt of such notice, Reseller may, at its sole option, terminate
this Agreement and/or seek any other available remedies available at law or
in equity.
c. INSOLVENCY. The commencement of any proceeding (voluntary or
involuntary) in bankruptcy or insolvency by or against either party hereto,
or the appointment (with or without the party's consent) of an assignee for
the benefit of creditors or a receiver with respect to either party hereto
shall constitute an event of default hereunder, and the non-defaulting party
may elect to terminate this Agreement immediately.
11. DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising under
this Agreement be resolved expeditiously, amicably, and at the level within
each party's organization that is most knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in this
Paragraph 11 are not intended to supplant the routine handling of inquiries
and complaints through informal contact with customer service representatives
or other designated personnel of the parties. Accordingly, for purposes of
the procedures set forth in this paragraph, a "DISPUTE" is a disagreement
that the parties have been unable to resolve by the normal and routine
channels ordinarily used for such matters. Before any dispute arising under
this Agreement, other than as provided in subparagraph e. below, may be
submitted to arbitration, the parties shall first follow the informal and
escalating procedures set forth below.
(1) The complaining party will notify the other party in
writing of the dispute, and the non-complaining party will exercise good
faith efforts to resolve the matter as expeditiously as possible.
(2) In the event that such matter remains unresolved for
thirty (30) days after the delivery of the complaining party's written
notice, a senior representative of each party shall meet or confer within ten
(10) business days of a request for such a meeting or conference by either
party to resolve such matter.
(3) In the event that the meeting or conference specified in
(2) above does not resolve such matter, the senior officer of each party
shall meet or confer within ten (10) business days of the request for such a
meeting or conference by either party to discuss and agree upon a mutually
satisfactory resolution of such matter.
(4) If the parties are unable to reach a resolution of the
dispute after following the above procedure, or if either party fails to
participate when requested, the parties may proceed in accordance with
subparagraph b. below.
b. Except as provided in subparagraph e. below, any dispute arising
under this Agreement shall, after utilizing the procedures in subparagraph
a., be resolved by final and binding arbitration in Long Beach, California,
before a single arbitrator selected by, and in accordance with, the rules of
commercial arbitration of the American Arbitration Association. Each party
shall bear its own costs in the arbitration, including attorneys' fees, and
each party shall bear one-half of the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages as
are not prohibited by this Agreement and may, in addition and in a proper
case, declare rights and order specific performance, but only in accordance
with the terms of this Agreement.
d. Either party may apply to a court of general jurisdiction to
enforce a arbitrator's award, and if enforcement is ordered, the party
against which the order is issued shall pay the costs and expenses of the
other party in obtaining such order, including reasonable attorneys' fees.
e. Notwithstanding the provisions of subparagraphs a. and b. above,
any action by StoresOnline to enforce its rights under Paragraph 12e of this
Agreement or to enjoin any infringement of the same by Reseller may, at
StoresOnline's election, be commenced in the state or federal courts of Los
Angeles, California, and Reseller consents to personal jurisdiction and venue
in such courts for such actions.
12. GENERAL.
a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between StoresOnline and Reseller and supersedes all
previous understandings, negotiations and proposals, whether written or oral.
This Agreement may not be altered, amended or modified except by an
instrument in writing signed by duly authorized representatives of each
party. In the event that any one or more provisions contained in this
Agreement should for any reason be held to be unenforceable in any respect,
such unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed as if such unenforceable provision had not been
contained herein.
b. FORCE MAJEURE. Neither party shall be liable to the other for
delays or failures to perform an obligation to the other hereunder if such
delay or failure to perform is due to any act of God, acts of civil or
military authority, labor disputes, fire, riots, civil commotion's, sabotage,
war, embargo, blockage, floods, epidemics, delays in transportation,
inability beyond StoresOnline's reasonable control to obtain necessary labor,
materials or manufacturing facilities, or when due to governmental
restrictions, including the inability of StoresOnline to obtain appropriate
U.S. export license approval or the subsequent suspension of same. In the
event of any such delay or failure, the parties shall have an additional
period of time equal to the time lost by reason of the foregoing in which to
perform hereunder.
c. GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California, without regard to principles
of choice of law.
d. ASSIGNMENT. Neither party shall assign this Agreement or any
rights hereunder without the prior written consent of the other party, which
consent shall not be unreasonably withheld, except that either party may
assign this Agreement without the consent of the other to a successor or
affiliate entity.
e. DISCLOSURE OF INFORMATION. Each party hereto acknowledges
that, in the course of meeting its obligations under this Agreement, it will
obtain information relating to the other party, which is of a confidential
and proprietary nature ("PROPRIETARY INFORMATION"). Such Proprietary
Information may include, but is not limited to, trade secrets, know-how,
inventions, techniques,
<PAGE>
processes, programs, schematics, data, customer lists, financial information
and sales and marketing plans.
Each party shall at all times during the term of this Agreement and
for one year after its termination, keep in confidence and trust from any
person or entity, all Proprietary Information of the other party and shall
not disclose or use such Proprietary Information without the prior written
consent of the party which owns such Proprietary Information, unless
compelled to disclose such Proprietary Information by judicial or
administrative process (including, without limitation, in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of governmental or regulatory authorities) or by other
requirements of law. Upon termination of this Agreement, each party shall
promptly return to the other party all Proprietary Information under
itscontrol and all copies thereof.
Neither party shall disclose the specific terms of this Agreement to
any third parties except as may be mutually agreed or as required by law or
the order of a court of competent jurisdiction.
The above limitations on disclosure of Proprietary Information shall
not apply to information which becomes publicly available through no act of
the disclosing party, is released by the owning party in writing with no
restrictions, is lawfully obtained by the disclosing party without breach of
this Agreement from third parties without obligations of confidentiality, is
previously known by the disclosing party without similar restrictions as
shown by documents in its possession prior to disclosure or is independently
developed by the disclosing party.
f. COMPLIANCE WITH LAW. Both parties hereto shall comply with all
applicable laws the violation of which would have a material adverse effect
on the other party or its business, including, without limitation, the export
control laws of the United States of America and prevailing regulations which
may be issued from time to time by the United States Department of Commerce
and any export control regulations of the United States and those countries
involved in transactions concerning the exporting, importing and re-exporting
of Services purchased under application of these terms and conditions.
Reseller shall also comply with the United States Foreign Corrupt Practices
Act and shall indemnify StoresOnline from violations of such act by Reseller.
This provision shall survive any termination or expiration of the Agreement.
g. EXERCISE OF REMEDIES. Any delay or omission by either party to
exercise any right or remedy under this Agreement shall not be construed to
be a waiver of any such right or remedy or any other right or remedy
hereunder.
h. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO
FAILURE TO PERFORM ITS OBLIGATIONS HEREUNDER.
i. HEADINGS. Headings contained in this Agreement are for
convenience only, are not a part of this Agreement, and do not in anyway
interpret, limit or amplify the scope, extent or intent of this Agreement or
any of the provisions hereof.
j. REGULATORY APPROVAL. Reseller warrants that the Services and
the Malls, when utilized with its own products, will comply with all
applicable industry and governmental standards and requirements.
StoresOnline assumes no responsibility or liability for these governmental
and regulatory standards or requirements, which liability and responsibility
is assumed entirely by Reseller. Upon request, StoresOnline will provide
copies of regulatory approvals to Reseller.
k. BRANDING. StoresOnline shall have the right to place a "POWERED
BY NETGATEWAY" or "POWERED BY STORESONLINE" byline in a mutually agreed upon
location and in a size and design to be mutually agreed upon by the parties
on each storefront site and on each Mall site.
l. PUBLICITY. StoresOnline (or its parent company, Netgateway,
Inc.) shall have the right to inform its customers and the public that
StoresOnline has entered into this Agreement with Reseller. Each party may
use the other's name or the name of its customers in marketing the Services
and the development of the Malls and may link to each other's websites, but
neither party will perform any actions which will harm the other's or its
customers name and reputation. Any such marketing materials will be provided
in advance to the other party for comment before publication.
m. NOTICES. Any notice required in connection with this Agreement
shall be given in writing and shall be deemed effective upon personal
delivery or three business days after deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled
to such notice at the address indicated below such party's signature line on
this Agreement or at such other address as such party may designate by ten
(10) days' advance written notice to the other party. All facsimile notices
shall be confirmed by written notice mailed, as provided above, within five
(5) days of the date of the facsimile is sent. Once confirmed, the notice
shall be effective as of the date of the facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be effective as of the date set forth herein.
STORESONLINE.COM, INC., A CALIFORNIA CORPORATION
By /s/ Donald M. Corliss, Jr.
-------------------------------------------------
Name: Donald M. Corliss, Jr.
--------------------------------------------
Their: Authorized Agent
-------------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
NETGATEWAY, a Nevada corporation
By /s/ Donald M. Corliss, Jr.
-------------------------------------------------
Name: Donald M. Corliss, Jr.
--------------------------------------------
Their: President
-------------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
CableONE, Inc.
By /s/ Ronald Pancratz
-------------------------------------------------
Name: Ronald Pancratz
--------------------------------------------
Its: Vice President
-------------------------------------------
Address for Notices:
Address: 1314 N. 3rd Street, 3rd Floor
Phoenix, AZ 85004
Telephone: (602) 364-6000
Facsimile: (602) 364-6014
E-mail Address:
Company URL: www.cableone.net
Technical Contact:
Telephone:
E-mail Address:
<PAGE>
ADDENDUM
Name of Reseller CableONE, Inc. Description of Reseller's Business: Cable
------------------ -----
Type Entity: Corporation television operator
----------------------- -----------------------------------------
Date of Agreement: August 30, 1999
----------------- -----------------------------------------
STANDARD FEATURE SET
CATALOGS
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds and Ounces
- - Sending Methods: Internet, Fax/Mail and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: United States, Canadian Provinces and
World Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
- - Shipping Formula Functions: Minimum, Maximum and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable and Optional
- - Users and Passwords
CATEGORIES
- - Unlimited Categories
- - Full Description
- - Image
PRODUCTS
- - Base Item Number
- - Description: Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-Taxable Products
- - Weight
- - Category
- - Multiple Product Options (i.e., Color, Size)
- - Multiple Product Option Items (i.e., Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links in Related Items
- - Links to other URL's
- - Preview product images
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
ORDERS
- - E-mail notification of new orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
STORESONLINE POINT OF SALE
- - Multiple Merchant Numbers
- - Automatic authorization of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
- - Freeze and Thaw Transactions
STORESONLINE HOSTING
- - Home Page Builder
- - Unique URL
- - 10 MB Free
- - Virtual hosting of existing domain names
- - Professionally designed templates
- - Customize your own templates
STORESONLINE SEARCH
- - Full Text Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
PRICING FOR STOREFRONT SERVICES:
One-Time Store Set-up Fee [**REDACTED**]
Monthly Base Wholesale Price
per active storefront [**REDACTED**]
Optional Monthly Maintenance Plan Determined based on individual
merchant store requirements
- -* The [**REDACTED**] set-up fee is for the basic StoresOnline store set-up
service. Additional products, images and custom work will be billed at
StoresOnline's standard rates. A quote will be approved by the merchant prior
to the commencement of such work.
** This fee applies to storefronts with up to 100 products. The Monthly Base
Wholesale Price shall be [**REDACTED**] for those storefronts with 101 to 300
products and [**REDACTED**] for those storefronts with 301 to 1000 products.
Pricing for Stores with over 1000 products will be determined by quote.
Tier: Reseller
<PAGE>
MALL DEVELOPMENT SERVICES AND PRICES
1. DEVELOPMENT. StoresOnline shall design and develop one or more
on-line Malls, to be branded around Reseller's name, brand and image, and
shall link to the Reseller's branded StoresOnline solution. The Malls will
include appropriate URL addresses, four to six featured products and stores
from various Reseller and third party advertisers, additional Reseller and
non-Reseller advertiser stores and products catalogued with text references,
and links to top-tier eCommerce sites. The Malls will also include an
appropriate search engine, commerce functionality, banner and other
appropriate advertising space and such other features as the parties shall
mutually agree. The Mall will be capable of cataloguing stores independently
or in conjunction with all other Malls developed hereunder, if any, as well
as other malls which belong to the StoresOnline electronic mall network.
Reseller agrees and understands that the storefronts of its end-user
customers may be placed in one or more electronic malls developed and/or
operated by StoresOnline.
2. PRICING. StoresOnline shall waive the mall design and development
fee in return for Reseller meeting its promotional and other obligations as
set forth herein.
<PAGE>
EXHIBIT A
STANDARD LICENSE AGREEMENT TERMS
1. LICENSE. This License allows you to use any software associated
with the provision of the Services.
2. RESTRICTIONS. You may not use, copy, modify or transfer the
program, or any copy, modification or merged portion, in whole or in part,
except as expressly provided for in this License. If you transfer possession
of any copy, modification or merged portion of the program to another party,
your License is automatically terminated.
3. TERM. The License is effective until terminated. You may
terminate it at any other time by notifying Reseller of your intent to do so.
The License will also terminate upon the occurrence of certain events set
forth elsewhere in this Agreement. Upon such termination, you agree to
destroy the program together with all copies, modifications and merged
portions in any form.
4. EXPORT LAW ASSURANCES. You agree that neither the pogrom nor any
direct product thereof is being or will be shipped, transferred or
re-exported, directly or indirectly, into any country prohibited by the US
Export Administration Act and the regulations thereunder or will be used for
any purpose prohibited by the Act.
5. LIMITED WARRANTY. The program is provided "AS IS" without
warranty of any kind, either expressed or implied, including, but not limited
to, the implied warranties of merchantability and fitness for a particular
purpose. The full text of the warranty is provided in the user manual.
6. LIMITED LIABILITY. In no event will StoresOnline be liable to you
for any damages, including any lost profits, lost savings or other incidental
or consequential damages arising out of the use of inability to use such
program even if StoresOnline has been advised of the possibility of such
damages, or for any claim by any other party.
7. GENERAL. If you are a Government end-user, this License conveys
only "RESTRICTED RIGHTS," and in its use, disclosure and duplication are
subject to Federal Acquisition Regulations, subparagraph (c)(1)(11)
52.227-7013. (See U.S. Government End-User provisions in manual.) This
License will be construed under the laws of the State of California, except
for that body of law dealing with conflicts of law. If any provision of the
License shall be held by a court of competent jurisdiction to be contrary to
law, that provisions shall be enforced to the maximum extent permissible, and
the remaining provisions of this License shall remain in full force and
effect.
<PAGE>
"NOTE - Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is on
file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
NETGATEWAY
ELECTRONIC COMMERCE SERVICES AGREEMENT
THIS ELECTRONIC COMMERCE SERVICES AGREEMENT (this "AGREEMENT") is made
effective as of the Acceptance Date set forth in the initial eCommerce Services
Order Form ( July 28, 1999) accepted by Netgateway, a Nevada corporation
("NETGATEWAY"), and the subscriber identified below ("SUBSCRIBER").
PARTIES:
SUBSCRIBER NAME: B2BSTORES.COM INC.
ADDRESS: 211 PARK AVENUE
HICKSVILLE, NY 11801
PHONE: (516) 931-4455
FAX: (516) 931-3530
NETGATEWAY
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562) 308-0010
Fax: (562) 308-0021
1. ELECTRONIC COMMERCE SERVICES.
1.1 eCOMMERCE SERVICES. Subject to the terms and conditions of this
Agreement, during the term of this Agreement, Netgateway will, through the
Netgateway Internet Commerce Center-TM- ("NETGATEWAY ICC"), provide to
Subscriber the services described in the eCommerce Services Order Form(s)
(the "eCOMMERCE SERVICES ORDER FORM(S)") accepted by Netgateway, or
substantailly similar services if such substantailly similar services would
provide Subscriber with substantially similar benefits (the "eCOMMERCE
SERVICES"). All such eCommerce Services Order Forms will be incorporated
herein by this reference as of the Acceptance Date set forth on each such
form. Netgateway and Subscriber have mutually agreed or will mutually agree
upon the detailed final specifications (the "SPECIFICATIONS") for the
eCommerce Services and the development timeline therefor, all of which are or
will be set forth on the attached initial eCommerce Services Order Form
attached hereto as Exhibit "A", and by this reference made a part hereof.
1.2 AVAILABILITY. eCommerce Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7) days a
week. Netgateway reserves the right upon reasonable notice to Subscriber to
limit or curtail holiday or weekend availability when necessary for system
upgrades, adjustments, maintenance or other operational considerations.
1.3 ENHANCEMENTS. General enhancements to existing eCommerce Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at no additional cost.
Any new features or services that may be developed by Netgateway during the
term of this Agreement which Netgateway intends to offer to subscribers on a
limited or optional basis may, at Netgateway's option, and subject to
Subscriber's acceptance, be made available to Subscriber at Netgateway's
then-current prices for such new features or service. Enhancements to
existing eCommerce Services requested by Subscriber that benefit only
Subscriber at the time such enhancements are put into service shall be billed
to Subscriber at Netgateway's standard rates for programming. All
enhancements to the eCommerce Services, and any new features or services
introduced by Netgateway, shall remain the exclusive proprietary property of
Netgateway.
1.4 TRAINING. At no cost to Subscriber Netgateway shall provide such
onsite training and other assistance, as Netgateway deems necessary to assure
that Subscriber's personnel are able to make effective use of the eCommerce
Services. On-site training shall take place at such times and places as are
mutually agreeable to the parties hereto.
1.5 SUBSCRIBER DATA.
(a) SUBSCRIBER DATA. Subscriber will timely supply Netgateway, in a form
acceptable to Netgateway, with all data necessary for Netgateway to perform the
ongoing services to be provided hereunder. It is the sole responsibility of
Subscriber to insure the completeness and accuracy of such data.
(b) CONFIDENTIALITY. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber are confidential and shall
take reasonable steps to protect the confidentiality of such records, data,
files and other materials. Netgateway will provide reasonable security
safeguards to limit access to Subscriber's files and records to Subscriber and
other authorized parties.
(c) PROTECTION OF SUBSCRIBER FILES. Netgateway will take reasonable
steps to protect against the loss or alteration of Subscriber's files, records
and data retained by Netgateway, but Subscriber recognizes that events beyond
the control of Netgateway may cause such loss or alteration. Netgateway will
maintain backup file(s) containing all the data, files and records related to
Subscriber. Subscriber's file(s), records and data shall, at no cost to
Subscriber, be released to Subscriber on an occurrence that renders Netgateway
unable to perform hereunder, or upon the termination of this Agreement as
provided herein.
(d) OWNERSHIP OF DATA. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber and its customers are the
exclusive property of the Subscriber.
2. FEES AND BILLING.
2.1 FEES. Subscriber will pay all fees and amounts in accordance with
the eCommerce Service Provider Forms.
2.2 BILLING COMMENCEMENT. The Initial Development Fee shall be due and
payable in accordance with the terms set forth on the eCommerce Services Order
Form. Billing for eCommerce Services indicated in the eCommerce Services Order
Form (including the eCommerce Rate, Fees Per Hit, Banner Advertising Revenue and
Click Through Revenue, as applicable) other than the Initial Development Fee,
shall commence on the "OPERATIONAL DATE" indicated in the eCommerce Services
Order Form. In the event that Subscriber orders other eCommerce Services in
addition to those listed in the initial eCommerce Services Order Form, billing
for such services shall commence on the date Netgateway first provides such
additional eCommerce Services to Subscriber or as otherwise agreed to by
Subscriber and Netgateway in the applicable eCommerce Services Order Form.
2.3 BILLING AND PAYMENT TERMS. All amounts due under this Agreement for
eCommerce Services indicated in the eCommerce Services Order Form shall be
payable in accordance with the Billing and Payment Terms set forth on Exhibit
"B" annexed hereto, which by this reference is made a part hereof.
2.4 TAXES, UTILITIES AND EXCLUSIONS. All charges shall be exclusive of
any federal, state or local sales, use, excise, AD VALOREM or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of the
eCommerce Services provided hereunder. Any such taxes shall be paid by
Subscriber or by Netgateway for Subscriber's account, in which case Subscriber
shall reimburse Netgateway for amounts so paid. Netgateway shall provide
burstible at 1 megabit per second capacity bandwith for Subscriber's website at
no additional charge. Should Subscriber need additional bandwidth, Netgateway
shall provide or make arrangements to provide such additional bandwidth and
invoice Subscriber for such excess bandwidth and/or use beyond a 1 megabit per
second burstible line. Netgateway will provide traffic reports to Subscriber
with respect to burstible capacity. Netgateway is not responsible for providing
connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 COMPLIANCE WITH LAWS AND RULES AND REGULATIONS. Subscriber agrees that
Subscriber will comply at all times with all applicable laws and regulations and
Netgateway's general rules and regulations relating to its provision of
eCommerce Services, currently included herein as Section 10, which may be
updated and provided by Netgateway to Subscriber from time to time ("RULES AND
REGULATIONS"). Subscriber acknowledges that Netgateway exercises no control
whatsoever over the content contained in or passing through the Subscriber's web
site, storefront or mall ("eCOMMERCE CENTERS"), and that it is the sole
responsibility of Subscriber to ensure that the information it transmits and
receives complies with all applicable laws and regulations.
3.2 ACCESS AND SECURITY. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the eCommerce Services),
and third party claims that may result from its use of, or access to, the
Netgateway Internet Commerce Center-TM-, including, but not limited to, any
unauthorized use or any access devices provided by Netgateway hereunder.
3.3 NO COMPETITIVE SERVICES. Subscriber may not at any time permit any
eCommerce Services to be utilized by Subscriber for the provision of any
services that compete with any Netgateway services, without Netgateway's
prior written consent.
3.4 INSURANCE.
(a) MINIMUM LEVELS. Within six (6) months of the date of this Agreement
(the last day of such period, the "Insurance Due Date"), Subscriber shall obtain
and keep in full force and effect during the term of this Agreement: (i)
comprehensive general liability insurance in an amount not less than $5 million
per occurrence for bodily injury and property damage; (ii) employer's liability
insurance in an amount not less than $1 million per occurrence; and (iii)
workers' compensation insurance in an amount not less than that required by
applicable law. Subscriber also agrees that it will be solely responsible for
ensuring that its agents (including contractors and subcontractors) maintain,
other insurance at levels no less than those required by applicable law and
customary in Subscriber's industry.
(b) CERTIFICATES OF INSURANCE. On or prior to the Insurance Due Date,
Subscriber will furnish Netgateway with certificates of insurance which evidence
the minimum levels of insurance set forth above, and will notify Netgateway in
writing in the event that any such insurance policies are cancelled.
(c) NAMING NETGATEWAY AS AN ADDITIONAL INSURED. Subscriber agrees that on
or prior to the Insurance Due Date, Subscriber will cause its insurance
provider(s) to name
<PAGE>
Netgateway as an additional insured and notify Netgateway in writing of the
effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 CONFIDENTIAL INFORMATION. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology and products, including the
terms and conditions of this Agreement ("CONFIDENTIAL INFORMATION").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors on a need to know basis), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such Confidential Information.
4.2 EXCEPTIONS. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 WARRANTIES BY SUBSCRIBER.
(a) SUBSCRIBER'S BUSINESS. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data and
information used by Subscriber in connection with this Agreement as well as
Subscriber's and its permitted customers' and users' use of the eCommerce
Services (collectively, "SUBSCRIBER'S BUSINESS") does not, as of the Operational
Date, and will not during the term of this Agreement, operate in any manner that
would violate any applicable laws or regulations.
(ii) Subscriber owns or has the right to use all material
contained in the Subscriber's web site, including all text, graphics, sound,
video, programming, scripts and applets; and
(iii) The use, reproduction, distribution and transmission
of the web site, or any information or materials contained in it does not: (A)
infringe or misappropriate any copyright, patent, trademark, trade secret or any
other proprietary rights of a third party; or (B) constitute false advertising,
unfair competition, defamation, an invasion of privacy or violate a right of
publicity.
(b) RULES AND REGULATIONS. Subscriber has read the Rules and Regulations
(Section 10 below) and represents and warrants that Subscriber and Subscriber's
Business are currently in full compliance with the Rules and Regulations, and
will remain so at all times during the term of this Agreement.
(c) BREACH OF WARRANTIES. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any other
remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent any
harm to Netgateway or its business.
5.2 WARRANTIES AND DISCLAIMERS BY NETGATEWAY.
(a) NO OTHER WARRANTY. THE eCOMMERCE SERVICES ARE PROVIDED ON AN "AS IS"
BASIS, AND SUBSCRIBER'S USE OF THE eCOMMERCE SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE eCOMMERCE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE OR COMPLETELY SECURE.
(b) DISCLAIMER OF ACTIONS CAUSED BY AND/OR UNDER THE CONTROL OF THIRD
PARTIES. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTER AND OTHER PORTIONS OF THE INTERNET. SUCH
FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR
CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE
THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S SUBSCRIBERS'
CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED.
ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT
DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, NETGATEWAY CANNOT GUARANTEE
THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 EXCLUSIONS. IN NO EVENT WILL NETGATEWAY BE LIABLE TO ANY THIRD PARTY
FOR ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT, SUBSCRIBER'S
BUSINESS OR OTHERWISE, AND ANY LOST REVENUE, LOST PROFITS, REPLACEMENT GOODS,
LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE
OR SUBSCRIBER'S BUSINESS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES,
WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY
OR OTHERWISE.
6.2 LIMITATIONS. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND
AGENTS SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS OR
DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF
SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS,
STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH
NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS AGAINST WHOM
LIABILITY IS SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT
OR INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS,
OMISSIONS OR ERRORS IN THE TRANSMISSION OR DELIVERY OF ECOMMERCE SERVICES, OR
ANY DATA PROVIDED AS A PART OF THE ECOMMERCE SERVICES PURSUANT TO THIS
AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF NETGATEWAY. IN ADDITION, IN NO EVENT SHALL NETGATEWAY BE LIABLE
TO SUBSCRIBER OR TO ANY THIRD PARTY FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES WHICH SUBSCRIBER OR SUCH THIRD PARTY MAY INCUR
OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS AGREEMENT OR
UTILIZING THE NETGATEWAY ECOMMERCE SERVICES, REGARDLESS OF WHETHER NETGATEWAY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE
CAUSED, IN WHOLE OR IN PART, BY THE NEGLIGENCE OF NETGATEWAY.
6.3 MAXIMUM LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, IN ALL CASES ARISING FROM EVENTS OCCURRING DURING THE TERM OF THIS
AGREEMENT, WHETHER BASED UPON TORT, CONTRACT WARRANTY, INDEMNITY CONTRIBUTION
OR OTHERWISE, DAMAGES SHALL BE LIMITED TO, AND SUBSCRIBER AGREES NOT TO MAKE
ANY CLAIM OR CLAIMS EXCEEDING [**REDACTED**] REGARDLESS OF HOW MANY CLAIMS
SUBSCRIBER MAY HAVE..
6.4 TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS
OR ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN TWO (2) YEARS OF THE FIRST OCCURRENCE GIVING RISE TO SUCH
CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT
THE LIMITATION OF NETGATEWAY'S LIABILITY SET FORTH IN SECTION 6 OR ELSEWHERE IN
THIS AGREEMENT.
6.5 SUBSCRIBER'S INSURANCE. [Reserved].
6.6 BASIS OF THE BARGAIN; FAILURE OF ESSENTIAL PURPOSE. Subscriber
acknowledges that Netgateway has set its prices and entered into this Agreement
in reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 NETGATEWAY'S INDEMNIFICATION OF SUBSCRIBER. Netgateway will
indemnify, defend and hold Subscriber harmless from and against any and all
costs, liabilities, losses and expenses (including, but not limited to,
reasonable attorneys' fees) (collectively, "LOSSES") resulting from any claim,
suit, action or proceeding (each, an "ACTION") brought against Subscriber
alleging the infringement of any third party registered U.S. copyright or issued
U.S. patent resulting from the provision of eCommerce Services pursuant to this
Agreement (but excluding any infringement contributorily caused by Subscriber's
Business).
7.2 SUBSCRIBER'S INDEMNIFICATION OF NETGATEWAY. Subscriber will
indemnify, defend and hold Netgateway, its affiliates and customers harmless
from and against any and all Losses resulting from or arising out of
Subscriber's breach of any provision of this Agreement or any Action brought
against Netgateway, its directors, employees, affiliates or Subscribers alleging
with respect to the Subscriber's Business: (a) infringement or misappropriation
of any intellectual property rights; (b) defamation, libel, slander, obscenity,
pornography or violation of the rights of privacy or publicity; (c) spamming, or
any other offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or, (d) any violation of any other applicable law or regulation.
7.3 NOTICE. Each party will provide the other party, prompt written
notice of the existence of any such indemnifiable event of which it becomes
aware, and an opportunity to participate in the defense thereof.
8. DISPUTE RESOLUTION.
8.1 PROCEDURES. It is the intent of the parties that all disputes
arising under this Agreement be resolved expeditiously, amicably, and at the
level within each party's organization that is most knowledgeable about the
disputed issue. The parties understand and agree that the procedures outlined
in this Paragraph 8 are not intended to supplant the routine handling of
inquiries and complaints through informal contact with customer service
representatives or other designated personnel of the parties. Accordingly, for
purposes of the procedures set forth in this paragraph, a "DISPUTE" is a
disagreement that the parties have been unable to resolve by the normal and
routine channels ordinarily used for such matters. Before any dispute arising
under this Agreement, other than as provided in paragraph 8.5 below, may be
submitted to arbitration, the parties shall first follow the informal and
escalating procedures set forth below.
<PAGE>
(a) The complaining party's representative will notify the other party's
representative in writing of the dispute, and the non-complaining party will
exercise good faith efforts to resolve the matter as expeditiously as possible.
(b) In the event that such matter remains unresolved thirty (30) days
after the delivery of the complainant party's written notice, a senior
representative of each party shall meet or confer within ten (10) business days
of a request for such a meeting or conference by either party to resolve such
matter.
(c) In the event that the meeting or conference specified in (b) above
does not resolve such matter, the senior officer of each party shall meet or
confer within ten (10) business days of the request for such a meeting or
conference by either party to discuss and agree upon a mutually satisfactory
resolution of such matter.
(d) If the parties are unable to reach a resolution of the dispute after
following the above procedure, or if either party fails to participate when
requested, the parties may proceed in accordance with paragraph 8.2 below.
8.2 BINDING ARBITRATION. Except as provided in paragraph 8.5 below, any
dispute arising under this Agreement shall, after utilizing the procedures in
paragraph 8.1, be resolved by final and binding arbitration in Los Angeles,
California, before a single arbitrator selected by, and in accordance with, the
rules of commercial arbitration of the American Arbitration Association or as
otherwise provided in Paragraph 11.6. Each party shall bear its own costs in
the arbitration, including reasonable attorneys' fees, and each party shall bear
one-half of the cost of the arbitrator.
8.3 ARBITRATOR'S AUTHORITY. The arbitrator shall have the authority to
award such damages as are not prohibited by this Agreement and may, in addition
and in a proper case, declare rights and order specific performance, but only in
accordance with the terms of this Agreement.
8.4 ENFORCEMENT OF ARBITRATOR'S AWARD. Any party may apply to a court of
general jurisdiction to enforce an arbitrator's award, and if enforcement is
ordered, the party against which the order is issued shall pay the costs and
expenses of the other party in obtaining such order, including reasonable
attorneys' fees.
8.5 ACCESS TO COURTS. Notwithstanding the provisions of paragraphs 8.1
and 8.2 above, any action by Netgateway to enforce its rights under Paragraphs
10.1 or 10.3 of this Agreement or to enjoin any infringement of the same by
Subscriber may, at Netgateway's election, be commenced in the state or federal
courts of Los Angeles, California, and Subscriber consents to personal
jurisdiction and venue in such courts for such actions.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement will be effective on the date first above
written and will terminate eighteen (18) months ("INITIAL TERM") from the date
Subscriber begins processing live data through the Netgateway ICC-TM-, unless
earlier terminated according to the provisions of this Section 9. This
Agreement will automatically renew for successive additional terms of
one (1) year each unless a party hereto elects not to so renew and notifies
the other party in writing of such election by a date which is six (6) months
prior to the lapse of the Initial Term or any renewal term thereafter.
9.2 TERMINATION. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days after
receipt of written notice of the same, except in the case of failure to pay
fees, which failure must be cured within five (5) days after receipt of written
notice from Netgateway; (ii) the other party becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation or composition for the benefit of creditors; or(iii)
the other party becomes the subject of an involuntary petition in bankruptcy or
any involuntary proceeding relating to insolvency, receivership, liquidation or
composition for the benefit of creditors, if such petition or proceeding is not
dismissed within sixty (60) days of filing. Subscriber shall have the right to
terminate the Agreement if the Netgateway servers which provide eCommerce
Services hereunder experience more than two percent (2%) down-time measured on
an annual basis; PROVIDED, HOWEVER, that down-time shall not include time
expended on regularly scheduled maintenance and other system upgrades.
9.3 NO LIABILITY FOR TERMINATION. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with its
terms.
9.4 EFFECT OF TERMINATION. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway shall immediately cease providing
eCommerce Services; (b) any and all payment obligations of Subscriber under this
Agreement shall become due immediately; and (c) within thirty (30) days after
such expiration or termination, each party shall return all Confidential
Information of the other party in its possession at the time of expiration or
termination and shall not make or retain any copies of such Confidential
Information, except as required to comply with any applicable legal or
accounting record keeping requirements.
9.5 SURVIVAL. The following provisions shall survive any expiration or
termination of the Agreement: Sections 2, 3, 4, 5, 6, 7, 8, 9 and 10.
10. USE OF eCOMMERCE SERVICES - RULES AND REGULATIONS.
10.1 PROPRIETARY SYSTEMS. Subscriber acknowledges that the software
systems utilized by Netgateway in the provision of eCommerce Services hereunder,
including the Netgateway ICC-TM-, all enhancements thereto and all screens and
formats used in connection therewith, are the exclusive proprietary property of
Netgateway, and Subscriber shall not publish, disclose, display, provide access
to or otherwise make available any Netgateway eCommerce software or products
thereof, or any screens, formats, reports or printouts used, provided, produced
or supplied from or in connection therewith, to any person or entity other than
an employee of Subscriber without the prior written consent of, and on terms
acceptable to, Netgateway, which consent shall not be unreasonably withheld;
PROVIDED, HOWEVER, that Subscriber may disclose to a governmental or regulatory
agency or to customers of Subscriber any information expressly prepared and
acknowledged in writing by Netgateway as having been prepared for disclosure to
such governmental or regulatory agency or to such customers. Neither party
shall disclose Subscriber's use of eCommerce Services in any advertising or
promotional materials without the prior written consent to such use, and
approval of such materials, by the other.
10.2 USE OF SERVICES PERSONAL TO SUBSCRIBER. Subscriber agrees that it
will use the services provided hereunder only in connection with its eCommerce
business, and it will not, without the express written permission of Netgateway,
sell, lease or otherwise provide or make available eCommerce Services to any
third party.
10.3 SURVIVAL OF OBLIGATIONS. The obligations of this Section 10 shall
survive termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway' software or copies
thereof, or the unauthorized use of eCommerce Services would cause irreparable
harm to Netgateway for which there is no adequate remedy at law. Subscriber
therefore agrees that in the event of such unauthorized disclosure or use,
Netgateway may, at its discretion and at Subscriber's expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Netgateway, in its reasonable, good faith judgment, determines that
there is a material risk of such unauthorized disclosure or use, it may demand
immediate assurances, satisfactory to Netgateway, that there will be no such
unauthorized disclosure or use. In the absence of such assurance, Netgateway
may immediately terminate this Agreement and take such other actions as it deems
necessary. The rights of Netgateway hereunder are in addition to any other
remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 FORCE MAJEURE. Except for the obligation to pay money, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including act of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
governmental act or failure of the Internet, provided that the delaying party:
(a) gives the other party prompt notice of such cause, and (b) uses its
reasonable commercial efforts to correct promptly such failure or delay in
performance.
11.2 NO LEASE. This Agreement is a services agreement and is not intended
to, and will not constitute, a lease of any real or personal property.
Subscriber acknowledges and agrees that: (i) it has been granted only a license
to use Netgateway's ICC-TM- and any equipment provided by Netgateway in
accordance with this Agreement, (ii) Subscriber has not been granted any real
property interest in the Netgateway's ICC-TM-, and (iii) Subscriber has no
rights as a tenant or otherwise under any real property or landlord/tenant laws,
regulations or ordinances.
11.3 MARKETING. Subscriber agrees that Netgateway may refer to Subscriber
by trade name and trademark, and may briefly describe Subscriber's business, in
Netgateway's marketing materials and web site. Subscriber hereby grants
Netgateway a license to use any Subscriber trade names and trademarks solely in
connection with the rights granted to Netgateway pursuant to this Section 11.3.
11.4 GOVERNMENT REGULATIONS. Subscriber will not export, re-export,
transfer or make available, whether directly or indirectly, any regulated item
or information to anyone outside the U.S. in connection with this Agreement
without first complying with all export control laws and regulations which may
be imposed by the U.S. Government and any country or organization of nations
within whose jurisdiction Subscriber operates or does business.
11.5 NON-SOLICITATION. Except with the prior consent of Netgateway,
which consent shall not be unreasonably withheld, during the period beginning
on the Operational Data and ending on the first anniversary of the
termination or expiration of this Agreement in accordance with its terms,
Subscriber agrees that it will not, and will ensure that its affiliates do
not, directly or indirectly, solicit or attempt to solicit for employment any
persons employed by Netgateway during such period.
11.6 GOVERNING LAW; DISPUTE RESOLUTION, SEVERABILITY; WAIVER. This
Agreement is made under and will be governed by and construed in accordance with
the laws of the State of California (without regard to that body of law
controlling conflicts of law) and specifically excluding from application to
this Agreement that law known as the United Nations Convention on the
International Sale of Goods. Any dispute relating to the terms, interpretation
or performance of this Agreement (other than claims for preliminary injunctive
relief or other pre-judgment remedies) will be resolved at the request of either
party through binding arbitration. Arbitration will be conducted in Los Angeles
County, California, under the rules and procedures of the Judicial Arbitration
and Mediation Society ("JAMS"). The parties will request that JAMS appoint a
single arbitrator possessing knowledge of online services agreements; PROVIDED,
HOWEVER, the arbitration will proceed even if such a person is unavailable. In
the event any provision of this Agreement is held by a tribunal of competent
jurisdiction to be contrary to the law, the remaining provisions of this
Agreement will remain in full force and effect. The waiver of any breach or
default of this Agreement will not constitute a waiver of any subsequent breach
or default, and will not act to amend or negate the rights of the waiving party.
<PAGE>
11.7 ASSIGNMENT; NOTICES. Subscriber may not assign its rights or
delegate its duties under this Agreement either in whole or in part without the
prior written consent of Netgateway, except that Subscriber may assign this
Agreement in whole as part of a corporate reorganization, consolidation, merger
or sale of substantially all of its assets. Any attempted assignment or
delegation without such consent will be void. Netgateway may assign this
Agreement in whole or part. This Agreement will bind and inure to the benefit of
each party's successors and permitted assigns. Any notice or communication
required or permitted to be given hereunder may be delivered by hand, deposited
with an overnight courier, sent by confirmed facsimile, or mailed by registered
or certified mail, return receipt requested, postage prepaid, in each case to
the address of the receiving party indicated on the signature page hereof, or at
such other address as may hereafter be furnished in writing by either party
hereto to the other. Such notice will be deemed to have been given as of the
date it is delivered, mailed or sent, whichever is earlier.
11.8 RELATIONSHIP OF PARTIES. Netgateway and Subscriber are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Netgateway
and Subscriber. Neither Netgateway nor Subscriber will have the power to bind
the other or incur obligations on the other's behalf without the other's prior
written consent, except as otherwise expressly provided herein.
11.9 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement, including all
documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the foregoing
and all documents incorporated therein and agree and accept such terms effective
as of the date first above written.
SUBSCRIBER
Signature: /s/ Woo Jin Kim Signature:
-------------------------- ------------------------
Print Name: Woo Jin Kim Print Name:
-------------------------- ------------------------
Title: CEO
--------------------------
NETGATEWAY
Signature: /s/ Donald M. Corliss, Jr. Signature:
-------------------------- ------------------------
Print Name: Donald M. Corliss, Jr. Print Name:
-------------------------- ------------------------
Title: President
--------------------------
<PAGE>
EXHIBIT "A"
ELECTRONIC COMMERCE SERVICES ORDER FORM
<PAGE>
NETGATEWAY
eCOMMERCE SERVICES ORDER FORM
SUBSCRIBER NAME: B2BSTORES.COM INC.
FORM DATE: JULY 28, 1999
FORM NO.: 001
GENERAL INFORMATION:
1. By submitting this eCommerce Services Order Form ("FORM") to Netgateway,
Subscriber hereby places an order for the eCommerce Services described
herein pursuant to the terms and conditions of the Electronic Commerce
Services Agreement between Subscriber and Netgateway prefixed hereto (the
"ECS AGREEMENT").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first begins
to process transactions through the Netgateway Internet Commerce Center,
whichever occurs first.
3. Netgateway will provide the eCommerce Services pursuant to the terms and
conditions of the ECS Agreement, which incorporates this Form. The terms
of this Form supersede, and by accepting this Form, Netgateway hereby
rejects, any conflicting or additional terms provided by Subscriber in
connection with Netgateway's provision of the eCommerce Services. If there
is a conflict between this Form and any other Form provided by Customer and
accepted by Subscriber, the Form with the latest date shall control.
4. Netgateway will not be bound by or required to provide eCommerce Services
pursuant to this Form or the ECS Agreement until each is signed by an
authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Submitted By: /s/ Woo Jin Kim Operational Date: 8-9-99
----------------------- -----------------
(AUTHORIZED SIGNATURE)
Print Name: /s/ Woo Jin Kim
-----------------------
Title: CEO
-----------------------
NETGATEWAY ACCEPTANCE
/s/ Donald M. Corliss, Jr. Date: 8-4-99
- ------------------------------------- -----------------------------
(AUTHORIZED SIGNATURE)
<PAGE>
NETGATEWAY
eCOMMERCE SERVICES ORDER FORM
Subscriber Name: B2BSTORES.COM INC.
Form Date: July 28, 1999
Form No.: 001
TERMS:
1. DEVELOPMENT FEE. The initial development fee for the B2BSTORES.COM and
ENVIROGOODS.COM internet commerce system shall be [**REDACTED**] and
shall be due and payable in full upon submission of this Order Form.
2. PHASE SPECIFICATIONS. Phase specifications shall be as set forth on
Schedule A annexed hereto.
3. ICC COMMERCE RATE. Netgateway shall be entitled to transaction fees
based upon the following schedule:
ANNUAL GROSS SALES REVENUE TRANSACTON FEE RATE
-------------------------- -------------------
$ 0 TO $25,000,000
25,000,001 TO 50,000,000 [**REDACTED**]
50,000,001 TO $100,000,000
100,000,001 and over
For purposes hereof, gross sales revenue shall mean all revenues generated
from transactions processed through the Netgateway Internet Commerce Center
which are related to Subscriber.
4. FEE PER HIT. Netgateway to receive [**REDACTED**] per hit (as that term
is customarily understood in the industry).
5. BANNER ADVERTISING REVENUE. Netgateway to receive [**REDACTED**] of
all banner advertising revenue from ads placed by Subscriber or
Netgateway on Subscriber's web site or mall.
6. CLICK-THROUGH REVENUE. Netgateway to receive [**REDACTED**] of all
click-through revenue generated from advertisers placed by Subscriber or
Netgateway on Subscriber's web site or mall.
<PAGE>
7. DEVELOPMENT TIMELINE: The B2BSTORES.COM internet commerce center shall
be fully operational on or before August 9, 1999.
8. PUBLIC ANNOUNCEMENTS: B2BSTORES.COM understands that Netgateway is a
public company and can be affected by the manner or content of public
announcements concerning this relationship. Neither party shall make any
public announcement of this Agreement or of the relationship they have
entered into without the prior written consent of the other.
Subscriber's Initial WJK
---------
<PAGE>
StoresOnline.com
RESELLER AND MALL AGREEMENT
Frontiervision
"NOTE--Certain confidential technical and commercial information has been
redacted from this exhibit in order to preserve the confidentiality of such
information. All of the confidential information which has been redacted is
on file with the Securities and Exchange Commission. Redacted material is
indicated by the symbol, "[**REDACTED**]" where such redacted text would have
appeared in this exhibit."
THE RESELLER AND MALL AGREEMENT (the "Agreement") is made and entered into as
of the date set forth on the Addendum attached hereto and by this reference
made a part hereof (the "Addendum"), between and among STORESONLINE.COM,
INC., a California corporation, and NETGATEWAY, a Nevada corporation, on the
one hand (collectively, "StoresOnline"), and the Reseller identified on the
Addendum, on the other hand ("Reseller").
R E C I T A L S
A. Reseller is an established business entity, engaged in the business
described in the Addendum.
B. StoresOnline owns, operates and maintains an Internet storefront-
building services package comprised of certain services delivered through
StoresOnline's proprietary software, the standard features of which are more
particularly described on the Addendum (the "Services").
C. The Services are delivered through the Internet and may be made
available through a private, branded electronic exchange to be developed for
Reseller.
D. StoresOnline desires to (i) sell and license the Services to
Reseller for Reseller's resale and sublicense to end-user customers or, with
the written permission of StoresOnline, to other resellers and (ii) develop
certain on-line mall(s) to be branded around Reseller's name, brand and image
(the "Malls").
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. SERVICES.
a. SCOPE OF AGREEMENT. This Agreement covers (i) the purchase,
licensing, promotion and sale of the Services and (ii) the design and
development of the Malls pursuant to and in accordance with the terms and
conditions set forth on the Addendum.
b. LICENSE GRANT; SALE OF SERVICES. StoresOnline grants to
Reseller, subject to the terms and conditions of this Agreement, the
[**REDACTED**] right and license to resell and sublicense (in the case of
software products), the Services to Reseller's end-user customers or, with
the written permission of StoresOnline, to other resellers. In the case of
software products, Reseller acknowledges that such software is and will
remain proprietary to StoresOnline, is copyrighted and that Reseller acquires
no right, title or interest in or to any such software by this Agreement.
Reseller agrees to sublicense the Services hereunder pursuant to the license
terms set forth in the Addendum, and to cause each of its customers or other
resellers to sublicense the Services pursuant to such license terms, which
terms shall be accepted electronically as part of the storefront registration
process described below.
c. PRODUCT NAME. It is expressly agreed that the ownership and all
right, title and interest in and to the Services and any trademark, trade
name, patent, or copyright relating to the Services is and will remain vested
solely in StoresOnline, PROVIDED, HOWEVER, that as permitted by this
Agreement, Reseller may use any existing or future trademark, trade name,
patent or copyright relating to the Services, such use to be limited to
promoting, selling, installing or maintaining the Services, and PROVIDED,
FURTHER, that as permitted by this Agreement, the Services may be branded
around Reseller's name, brand and image. Reseller shall use its best efforts
during the term of this Agreement to protect StoresOnline's trademarks, trade
names, patents and copyrights, but shall not be required to instigate legal
action against third parties for any infringement thereof. Reseller shall
notify StoresOnline of any infringement as soon as practicable after becoming
aware of any such infringement. Reseller shall not use, directly or
indirectly, in whole or in part, StoresOnline's name or any other trade name
or trademark, that is owned or used by StoresOnline in connection with any
product other than StoresOnline's products, without prior written consent of
StoresOnline.
d. MALL DEVELOPMENT. StoresOnline shall develop the Malls in
accordance with the terms and conditions set forth herein and on the
Addendum. The Malls may be branded around Reseller's name, brand and image
and shall link to the Reseller's branded StoresOnline solution. The Malls
will include appropriate URL addresses, four to six featured products and
stores from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text
references and links to top-tier eCommerce sites. The Mall will also include
an appropriate search engine, commerce functionality, banner and other
appropriate advertising space and such other features as the parties shall
mutually agree. The Mall will be capable of cataloguing stores independently
or in conjunction with all other Malls developed hereunder, if any, as well
as other malls which belong to the StoresOnline mall network.
2. TERMS OF AGREEMENT. The term of this Agreement shall commence as of
the execution hereof and continue for an initial term of one (1) year. Such
term shall automatically be extended for additional one-year terms thereafter
unless either party notifies the other, not less than thirty (30) days prior
to the expiration of this applicable term, of its intention not to renew the
Agreement.
a. Notwithstanding the foregoing, this Agreement may be terminated
in accordance with the provisions of Section 10.
b. Termination of this Agreement shall not relieve either party of
any obligations incurred prior to termination, including outstanding delivery
and payment obligations and other contractual commitments agreed to from time
to time in writing by an officer of StoresOnline. The obligation set forth
in Sections 3d,6b,8,10a,12c,12e,12f and 12h are expressly intended to survive
termination of this Agreement.
3. PRICES AND TAXES
a. PRICES FOR SERVICES. StoresOnline shall charge Reseller the
one-time Store Set-up Price set forth on the Addendum for each of Reseller's
customers. StoresOnline shall also charge Reseller the applicable Monthly Basic
Wholesale Price set forth on the Addendum.
b. PRICE ADJUSTMENTS FOR SERVICES. The prices for the Services are
subject to change by StoresOnline at any time, and shall become effective
ninety (90) days after written notification of such change to Reseller.
c. RETAIL PRICES FOR SERVICES. On or before the first day of each
month, Reseller shall provide StoresOnline with a list of the Reseller prices
charged for each class of Accounts or for each Account (as hereinafter
defined).
d. PRICES FOR MALL DEVELOPMENT. All prices for Mall design,
development and operation provided hereunder shall be as set forth on the
Addendum. It is anticipated that the Malls will generate multiple revenue
streams. Reseller and StoresOnline shall split the net revenue generated from
all such revenue sources on a [**REDACTED**] basis. Such revenue sources to
be split shall include, but are not limited to: (i) eCommerce advertisers
provided by StoresOnline, (ii) the pro rata share of Mall banner advertising
attributable to Reseller, (iii) click-through revenue from eTailer sales; and
(iv) revenue generated from featured product sales. The parties hereto shall
mutually agree to pricing in the event advertising space is sold on a
straight-buy basis.
e. TAXES. All prices for any services or products supplied
hereunder are exclusive of any federal, state or local sales, use, excise, AD
VALOREM or personal property taxes levied, or any fines, forfeitures or
penalties assessed in connection therewith, as a result of this Agreement or
the installation or use of services or products hereunder. Reseller or
Reseller's customer shall pay any and all such taxes, or StoresOnline may pay
such taxes for Reseller's account of Reseller's customer account, in which
case Reseller shall be obligated to reimburse StoresOnline for amounts so
paid. Any such taxes, duties or government imposed levies which are charged
to or payable by StoresOnline (exclusive of taxes based on StoresOnline's net
income) will be invoiced to and paid by Reseller in the manner set forth in
Section 6 below.
4. PROMOTION. StoresOnline shall provide Reseller with two thirty
second Mall promotional television commercials that Reseller shall cablecast
on its various cable systems a minimum of 1,000 times per broadcast month,
per market for the duration of the Agreement.
5. CUSTOMER ACCOUNTS
a. CUSTOMER ACCOUNT REGISTRATION PROCESS. The Services provided
hereunder include an online registration process that Reseller and its
customers will use to establish storefront accounts (the "Accounts"). In
order to establish an account, Reseller's customers must complete an on-line
registration process in accordance with the terms set forth on the
StoresOnline website. At the option of the customer, registration may also
be completed non-electronically. The general terms and conditions for the
use of Accounts shall be posted from time to time on the StoresOnline web
site, or in the event that StoresOnline establishes an electronic exchange for
Reseller such information will be posted on Reseller's exchange. The terms
and conditions as posted shall, in all events
<PAGE>
and at all times, be binding upon the Reseller and its customers who
establish Accounts. The terms and conditions governing such Accounts may be
amended or canceled, from time to time, upon thirty (30) days prior
electronic notice to Reseller. To establish an Account, Reseller's customers
must provide credit card information and authorize the payment of fees for
Services on a monthly basis in advance.
b. CONTINUATION OF CUSTOMER ACCOUNTS. Continuation of each
customer Account is subject to the timely payment of the monthly fees
associated with such accounts, and failure to do so shall constitute grounds
for StoresOnline to cancel and terminate an Account.
6. BILLING AND PAYMENT TERMS.
a. INVOICING FOR SERVICES. Reseller may request that StoresOnline
invoice Reseller's customers directly. In such event, StoresOnline shall
electronically invoice Reseller's customers and directly charge against the
credit card accounts provided by such customers on a monthly basis for the
retail price of the Services charged by Reseller. All fees due under this
Agreement shall be paid in advance and are due on the first day of each
month. In preparing the invoices and charging against the applicable credit
cards, StoresOnline shall use the most recent Reseller retail prices provided
to StoresOnline by Reseller pursuant to Section 3c hereof for the Accounts
invoiced.
b. PAYMENT AND COLLECTION FOR SERVICES. Payments shall be made
through Reseller's customers' credit cards provided by Reseller's customers
for that purpose during the registration process. StoresOnline shall collect
the monthly fees set by Reseller from Reseller's customers and, after
deducting any monthly fees and expenses to which it is entitled hereunder,
shall remit the balance to Reseller on a monthly basis, together with a
statement setting forth the amounts collected, the amounts deducted and the
total amount remitted. In the event payment is not received by StoresOnline
within the specified time, an additional late charge of one and one half
percent (1.5%) of the past due amount will be accrued for each thirty (30)
days outstanding, prorated on a daily basis. All payments for Services shall
be made in United States dollars.
c. DIRECT RESELLER BILLING FOR SERVICES. In the event that
Reseller chooses to bill its customers directly for the Services, Reseller
shall remit directly to StoresOnline the applicable Monthly Wholesale Retail
Price (per storefront). All such fees shall be paid in advance and are due on
the first day of each month.
d. BILLING FOR MALL RELATED CHARGES; ADVERTISING AND RELATED
REVENUES. StoresOnline shall invoice Reseller indirectly for all charges due
hereunder in connection with the design development and operation of the
Malls, which charges shall be payable in full in advance. All revenues
generated from the Malls (including advertising and related revenues) which
are to required to be split between StoresOnline and Reseller pursuant to
paragraph 3(d) hereof shall be invoiced and collected by StoresOnline.
StoresOnline shall thereafter forward all amounts due, if any, to Reseller
(net 30 days) at the address provided on the signature page hereto.
7. REAL TIME PAYMENT PROCESSING. Real-time credit card processing shall
be available in accordance with the terms of this Section 7. In the event
that a customer wishes the StoresOnline real-time credit payment processing
option, such customer must establish a customer account with an FDIC network
bank and must open an account with a participating credit-card processor.
8. DISCLAIMER OF WARRANTIES AND LIMITATIONS OF LIABILITY.
a. DISCLAIMER OF WARRANTY. EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
THERE ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND
DISCLAIMS ANY WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR WARRANTIES OF THE CORRECTNESS, ACCURACY,
PRECISION, TIMELINESS OR COMPLETENESS OF ANY INFORMATION OR
SERVICES PROVIDED HEREUNDER.
b. LIMITATION OF LIABILITY. STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL NOT BE LIABLE TO RESELLER
OR TO ANY THIRD PARTY FOR ANY LOSS OR DAMAGE, WHETHER DIRECT OR
INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OR SERVICE DUE
TO MECHANICAL, ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES,
STORMS, STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR
OTHER CAUSES OVER WHICH STORESONLINE, ITS DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYESS OR AGENTS AGAINST WHOM LIABILITY IS SOUGHT
HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR
INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS,
ERRORS OF FACTS, OMISSIONS OR ERRORS IN THE TRANSMISSION OR
DELIVERY OF THE SERVICES, OR ANY DATA PROVIDED AS A PART OF THE
SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED
BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF STORESONLINE. IN ALL
CASES ARISING FROM EVENTS OCCURRING DURING THE TERM OF THIS
AGREEMENT, WHETHER BASED UPON TORT, CONTRACT, WARRANTY,
INDEMNITY, CONTRIBUTION OR OTHERWISE, DAMAGES SHALL BE LIMITED
TO, AND RESELLER AGREES NOT TO MAKE ANY CLAIM OR CLAIMS
EXCEEDING TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), REGARDLESS OF
HOW MANY CLAIMS RESELLER MAY HAVE. IN ADDITION, IN NO EVENT
SHALL STORESONLINE BE LIABLE TO RESELLER OR TO ANY THIRD PARTY
FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSSES OR
DAMAGES WHICH RESELLER OR SUCH THIRD PARTY MAY INCUR OR
EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS
AGREEMENT OR UTILIZING THE SERVICES, REGARDLESS OF WHETHER
STORESONLINE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES
OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN PART, BY THE
NEGLIGENCE OF STORESONLINE.
C. TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY RESELLER AGAINST
STORESONLINE, ITS DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES,
AGENTS, SUCCESSORS OR ASSIGNS, BASED UPON ANY ACT OR OMISSION
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR SERVICES
PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL BE
COMMENCED WITHIN TWO (2) YEARS OF THE FIRST OCCURRENCE GIVING
RISE TO SUCH CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT
MODIFY OR OTHERWISE AFFECT THE LIMITATION OF STORESONLINE'S
LIABILITY SET FORTH IN THIS PARAGRAPH 8 OR ELSEWHERE IN THIS
AGREEMENT.
d. DISCLAIMER. THE WARRANTIES AND CONDITIONS SET FORTH HEREIN AND
THE OBLIGATIONS AND LIABILITIES OF STORESONLINE HEREUNDER ARE IN
LIEU OF, AND BUYER HEREBY WAIVES, ALL EXPRESS AND IMPLIED
WARRANTIES AND CONDITIONS, INCLUDING, WITHOUT LIMITATION, THOSE
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OF
NONINFRINGEMENT. IN NO EVENT SHALL STORESONLINE'S LIABILITY FOR
ANY CLAIM ASSERTED BASED ON A VIOLATION OF WARRANTY OR CONDITION
EXCEED THE AMOUNT PAID BY RESELLER TO STORESONLINE FOR
THE AFFECTED ITEM OR SERVICES.
9. DOCUMENTATION AND TRAINING. Provided that Reseller has met the
minimum performance standards set forth elsewhere in this
<PAGE>
Agreement, StoresOnline shall, on a semi-annual basis, provide
free-of-charge a one (1) day training program for employees
designated by Reseller at the StoresOnline corporate headquarters.
Additional training by StoresOnline shall be made available to
Reseller at StoresOnline's standard rates. All expenses of the
trainees under this Section 9 shall be borne by Reseller.
10. DEFAULT.
a. RESELLER'S DEFAULT. The failure by Reseller to make any payment
required hereunder or a material breach by Reseller of its obligations
hereunder shall constitute an event of default by Reseller. Upon the occurrence
of an event of default, StoresOnline shall provide Reseller with written
notice specifying the nature of such default. If Reseller has not cured such
default within thirty (30) days after receipt of such notice, StoresOnline
may, at its sole discretion, terminate this Agreement and/or seek any other
available remedies available at law or in equity, PROVIDED, HOWEVER, that the
cancellation of this Agreement shall not prevent Reseller from reselling the
Services (and sublicensing the software component thereof) previously paid
for by Reseller and sublicenses previously granted by Reseller pursuant
hereto shall not be affected by such termination.
b. STORESONLINE'S DEFAULT. A material breach by StoresOnline of its
obligations hereunder shall constitute an event of default by StoresOnline.
Upon the occurrence of an event of default by StoresOnline, Reseller shall
provide StoresOnline with written notice specifying the nature of such
default. If StoresOnline fails to cure such default, within thirty (30) days
after receipt of such notice, Reseller may, at its sole option, terminate
this Agreement.
c. INSOLVENCY. The commencement of any proceeding (voluntary of
involuntary) in bankruptcy or insolvency by or against either party hereto,
or the appointment (with or without the party's consent) of an assignee for
the benefit of creditors or a receiver with respect to either party hereto
shall constitute an event of default hereunder, and the non-defaulting party
may elect to terminate this Agreement immediately.
11. DISPUTE RESOLUTION.
a. It is the intent of the parties that all disputes arising under
this Agreement be resolved expeditiously, amicably, and at the level within
each party's organization that is more knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in this
Paragraph 11 are not intended to supplant the routine handling of inquiries
and complaints through informal contact with customer service representatives
or other designated personnel of the parties. Accordingly, for purposes of
the procedures set forth in this paragraph, a "dispute" is a disagreement
that the parties have been unable to resolve by the normal and routine
channels ordinarily used for such matters. Before any dispute arising under
this Agreement, other than as provided in subparagraph e. below, may be
submitted to arbitration, the parties shall first follow the informal and
escalating procedures set forth below.
(1) The complaining party's representative will notify the other
party's representative in writing of the dispute, and the non-complaining
party will exercise good faith efforts to resolve the matter as expeditiously
as possible.
(2) In the event that such matter remains unresolved for thirty
(30) days after the delivery of the complaining party's written notice, a
senior representative of each party shall meet or confer within ten (10)
business days of a request for such a meeting or conference by either party
to resolve such matter.
(3) In the event that the meeting or conference specified in (2)
above does not resolve such matter, the senior officer of each party shall
meet or confer within ten (10) business days of the request for such a
meeting or conference by either party to discuss and agree upon a mutually
satisfactory resolution of such matter.
(4) If the parties are unable to reach a resolution of the
dispute after following the above procedure, or if either party fails to
participate when requested, the parties may proceed in accordance with
subparagraph b. below.
b. Except as provided in subparagraph e. below, any dispute arising
under this Agreement shall, after utilizing the procedures in subparagraph
a., be resolved by final and binding arbitration in Long Beach, California,
before a single arbitrator selected by, and in accordance with, the rules of
commercial arbitration of the American Arbitration Association. Each party
shall bear its own costs in the arbitration, including attorneys' fees, and
each party shall bear one-half of the cost of the arbitrator.
c. The arbitrator shall have the authority to award such damages as
are not prohibited by this Agreement and may, in addition and in a proper
case, declare rights and order specific performance, but only in accordance
with the terms of this Agreement.
d. Either party may supply to a court of general jurisdiction to
enforce an arbitrator's award, and if enforcement is ordered, the party
against which the order is issued shall pay the costs and expenses of the
other party in obtaining such order, including reasonable attorneys' fees.
e. Notwithstanding the provisions of subparagraphs a. and b. above,
any action by StoresOnline to enforce its rights under Paragraph 12e of this
Agreement or to enjoin any infringement of the same by Reseller may, at
StoresOnline's election, be commenced in the state or federal courts of
California, and Reseller consents to personal jurisdiction and venue in such
courts for such actions.
12. GENERAL.
a. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between StoresOnline and Reseller and supersedes all
previous understandings, negotiations, and proposals, whether written or
oral. This Agreement may not by altered, amended or modified except by an
instrument in writing signed by duly authorized representatives of each
party. In the event that any one or more provisions contained in this
Agreement should for any reason be held to be unenforceable in any respect,
such unenforceability shall not affect any other provisions hereof, and this
Agreement shall by construed as if such unenforceable provision had not
been contained herein.
b. FORCE MAJEURE. Neither party shall be liable to the other for
delays or failures to perform an obligation to the other hereunder if such
delay or failure to perform is due to any act of God, acts of civil or
military authority, labor disputes, fire, riots, civil commotion's,
sabotage, war, embargo, blockage, floods, epidemics, delays in
transportation, inability beyond StoresOnline's reasonable control to obtain
necessary labor, materials or manufacturing facilities, or when due to
governmental restrictions, including the inability of StoresOnline to obtain
appropriate U.S. export license approval or the subsequent suspension of
same. In the event of any such delay or failure, the parties shall have an
additional period of time equal to the time lost by reason of the foregoing in
which to perform hereunder.
c. GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California, without regard to principles of
choice of law.
d. ASSIGNMENT. Reseller shall not assign this Agreement or any
rights hereunder without the prior written consent of StoresOnline, which
consent shall not be unreasonably withheld. StoresOnline may assign this
Agreement to a subsidiary or affiliate corporation.
e. DISCLOSURE OF INFORMATION. Reseller acknowledges that, in the
course of purchasing Services and meeting its obligations under this
Agreement, it will obtain information relating to the Services and to
StoresOnline, which is of a confidential and proprietary nature
("StoresOnline Proprietary Information"). Such StoresOnline Proprietary
Information may include, but is not limited to, trade secrets, know-how,
inventions, techniques, processes, programs, schematics, data, customer
lists, financial information and sales and marketing plans.
Reseller shall at all times during the term of this Agreement and
for three years after its termination, keep in confidence and trust from any
person or entity all StoresOnline Proprietary Information and shall not
disclose or use such StoresOnline Proprietary Information without the prior
written consent of StoresOnline, unless compelled to disclose such
StoresOnline Proprietary Information by judicial or administrative process
(including, without limitation, in connection with obtaining the necessary
approvals of this Agreement and the transaction contemplated hereby of
governmental or regulatory authorities) or by other requirements of law. Upon
termination of this Agreement, Reseller shall promptly return to StoresOnline
all StoresOnline Proprietary Information under its control and all copies
thereof.
Neither party shall disclose the specific terms of this Agreement
to any third parties except as may be mutually agreed or as required by law
or the order of a court of competent jurisdiction.
The above limitations on disclosure of StoresOnline Proprietary
Information shall not apply to information which becomes publicly available
through no act of Reseller, is released by StoresOnline in writing with no
restrictions, is lawfully obtained by Reseller without breach of this
Agreement from third parties without obligations of confidentiality, is
previously known by Reseller without similar restrictions as shown by
documents in its possession prior to disclosure by StoresOnline or is
independently developed by Reseller.
f. COMPLIANCE WITH LAW. Reseller shall comply with all applicable
law including, without limitation, the export control laws of the United
States of America and prevailing regulations which may be issued from time to
time by the United States Department of Commerce and any export control
regulations of the United States and those countries involved in transactions
concerning the
<PAGE>
exporting, importing and re-exporting of Services purchased under application
of these terms and conditions. Reseller shall also comply with the United
States Foreign Corrupt Practices Act and shall indemnity StoresOnline from
violations of such act by Reseller. This provision shall survive any
termination or expiration of the Agreement.
g. EXERCISE OF REMEDIES. Any delay or omission by either party to
exercise any right or remedy under this Agreement shall not be construed to
be a waiver of any such right or remedy or any other right or remedy
hereunder.
h. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO
FAILURE TO PERFORM ITS OBLIGATIONS HEREUNDER.
i. HEADINGS. Headings contained in this Agreement are for
convenience only, are not a part of this Agreement, and do not in anyway
interpret, limit or amplify the scope, extent or intent of this Agreement or
any of the provisions hereof.
j. REGULATORY APPROVAL. Reseller warrants that the Services and
the Malls, when utilized with its own products, will comply with all
applicable industry and governmental standards and requirements. StoresOnline
assumes no responsibility or liability for these governmental and regulatory
standards or requirements, which liability and responsibility is assumed
entirely by Reseller. Upon request, StoresOnline will provide copies of
regulatory approvals to Reseller.
k. BRANDING. StoresOnline shall have the right to place a "Powered
by Netgateway" or "Powered by StoresOnline" byline in a prominent manually
agreed upon location on each storefront site and on each Mall site.
l. PUBLICITY. StoresOnline (or its present company, Netgateway,
Inc.) shall have the right to inform its customers and the public that
StoresOnline has entered into this Agreement with Reseller. Each party may
use the other's name or the name of its customers in marketing the Services
and the development of the Malls and may link to each other's websites, but
neither party will perform any actions which will harm the other's or its
customers name and reputation.
m. NOTICES. Any notice required in connection with this Agreement
shall be given in writing and shall be deemed effective upon personal
delivery or three business days after deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled
to such notice at the address indicated below such party's signature line on
this Agreement or at such other address as such party may designate by ten
(10) days advance written notice to the other party. All facsimile notices
shall be confirmed by written notice mailed, as provided above, within five
(5) days of the date of the facsimile is sent. Once confirmed, the notice
shall be effective as of the date of the facsimile.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date set forth herein.
STORESONLINE.COM INC., a California corporation
NETGATEWAY, INC., a Nevada corporation
By /s/ DONALD M. CORLISS, JR.
--------------------------
Name: Donald M. Corliss, Jr.
----------------------
Its:
----------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
/s/ GINA OLENIO
----------------
Name of Reseller
By /s/ FrontierVision
-------------------
Name: Gina Olenio
-----------
Its:
-----------
Address:
Telephone:
Facsimile:
E-mail Address:
URL:
Technical Contact:
Telephone:
E-mail Address:
<PAGE>
ADDENDUM
Name of Reseller FRONTIERVISION Description of Resellers
--------------- Business:
Type Entity: CABLE TELEVISION PROGRAMMING SERVICES
------------------- ----------------------------------------------
Date of Agreement: JULY 27, 1999
--------------- ----------------------------------------------
STANDARD FEATURE SET
Catalogs
- - International Currencies
- - Weight Units: Kilograms, Grams, Pounds and Ounces
- - Sending Methods: Internet, Fax/Mail and Phone
- - Faxed Internet Orders
- - Payment Methods: VISA, MasterCard, American Express, Discover and JCB
- - Custom Payment Methods
- - Standard Shipping Destinations: United States, Canadian Provinces and World
Countries
- - Custom Shipping Destinations
- - Multiple Shipping Methods and Regions
- - Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
- - Shipping Formula Functions: Minimum, Maximum and Range
- - Custom Tax Rates
- - Custom Survey Questions: Long Answer, Short Answer, Multiple Choice and
Single Choice
- - Custom Subtotal Items: Fixed, User Enterable and Optional
- - Users and Passwords
Categories
- - Unlimited Categories
- - Full Description
- - Image
Products
- - Base Item Number
- - Description: Full Description
- - Image
- - Price
- - Sale Price
- - Unique Sale Price for Each Catalogue
- - Non-Taxable Products
- - Weight
- - Category
- - Multiple Products Options (i.e., Color, Size)
- - Multiple Product Option Items (i.e., Red, Green, Blue)
- - Custom Item Numbers based on Options
- - Custom Pricing based on Options
- - Option Conflicts
- - Quantity Discounts
- - Links to Related Items
- - Links to other URL's
- - Preview product pages
- - Generated HTML code to copy and paste into existing sites
- - Graphical pricing for easy integration into existing sites
- - Import product information from a test-delimited file
Orders
- - E-mail notification of new orders
- - Order Status
- - Waybill Number and Shipper
- - Custom Notes
- - End-user Order Tracking
- - Export Order Information
StoresOnline Point of Sale
- - Multiple Merchant Numbers
- - Automatic authorization of orders sent over the Internet
- - Manual Authorizations
- - Credits
- - Automatic Settlement
- - Freeze and Thaw Transactions
StoresOnline Hosting
- - Home Page Builder
- - Unique URL
- - 10 MB Free
- - Virtual hosting of existing domain name
- - Professionally designed templates
- - Customize your own templates
StoresOnline Search
- - Full Text Search Engine
- - Full Word Listing
- - Phrase or Boolean Searching
- - Re-index your site anytime
- - Integrate into existing sites
PRICING FOR STOREFRONT SERVICES
Up to 100 Products:
Monthly Base Wholesale Price: [**REDACTED**]
One Time Store Set-up Fee:
Up to 100 products
Base Wholesale Price: $[**REDACTED**]
Additional products may be preordered at [**REDACTED**] per product
Scanning [**REDACTED**] per image (First 10 images [**REDACTED**])
Optional store ????? / custom design work billed to merchant at standard
StoresOnline rates.
As a launch incentive, Reseller shall receive up to [**REDACTED**] Free Store
Set-Ups and the monthly wholesale price of [**REDACTED**] shall be waived
for 60 days following the Set-up of each Free Store for each new Frontiervision
market launching the service.
<PAGE>
STANDARD LICENSE AGREEMENT TERMS
1. LICENSE. This license allows you to use any software associated
with the provision of the Services.
2. RESTRICTIONS. You may not use, copy, modify or transfer the
program, or any copy, modification or merged portion, in whole or in part,
except as expressly provided for in this License. If you transfer possession
of any copy, modification or merged portion of the program to another party,
your License is automatically terminated.
3. TERM. The License is effective until terminated. You may
terminate it at any other time by notifying Reseller of your intent to do
so. The License will also terminate upon the occurrence of certain events
set forth elsewhere in this Agreement. Upon such termination, you agree to
destroy the program together with all copies, modifications and merged
portions in any form.
4. EXPORT LAW ASSURANCES. You agree that neither the program nor
any direct product thereof is being or will be shipped, transferred or
re-exported, directly or indirectly, into any country prohibited by the US
Export Administration Act and the regulations thereunder or will be used for
any purpose prohibited by the Act.
5. LIMITED WARRANTY. The program is provided "as is" without
warranty of any kind, either expressed or implied, including, but not limited
to, the implied warranties of merchantability and fitness for a particular
purpose. The full text of the warranty is provided in the user manual.
6. LIMITED LIABILITY. In no event will StoresOnline be liable to
you for any damages, including any lost profits, lost savings or other
incidental or consequential damages arising out of the use or inability to
use such program even if StoresOnline has been advised of the possibility of
such damages, or for any claim by any other party.
7. GENERAL. If you are a Government end-user, this License conveys
only "Restricted Rights" and in its use, disclosure and duplication are
subject to Federal Acquisition Regulations, subparagraph (c) (1) (11)
52.227-7013. (See U.S. Government End-User provisions in manual.) This
License will be construed under the laws of the State of California, except
for that body of law dealing with conflicts of law. If any provision of the
License shall be held by a court of competent jurisdiction to be contrary to
law, that provision shall be enforced to the maximum extent permissible, and
the remaining provisions of this License shall remain in full force and effect.
MALL DEVELOPMENT SERVICES AND PRICES
1. DEVELOPMENT. StoresOnline shall design and develop one on-line
Mall, with links to local market malls, to be branded around Reseller's name,
brand and image. The Mall will be capable of cataloguing stores
independently or in conjunction with all other Malls developed hereunder, as
well as other malls which belong to the StoresOnline mall network.
2. PRICING.
The initial on-line Mall development fees shall be waived.
<PAGE>
EXHIBIT 10.53
NETGATEWAY
INTERNET SERVICES AGREEMENT
THIS INTERNET SERVICES AGREEMENT (this "AGREEMENT") is made effective
as of the Acceptance Date set forth in the initial Internet Services Order Form
(October 25, 1999) accepted by Netgateway, a Nevada corporation ("NETGATEWAY"),
and the subscriber identified below ("SUBSCRIBER").
PARTIES:
SUBSCRIBER NAME: BERGEN BRUNSWIG DRUG COMPANY
ADDRESS: 4000 METROPOLITAN DRIVE
ORANGE, CA 92868
PHONE: (714) 385-4000
FAX: (714) 704-7034
NETGATEWAY, INC.
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562) 308-0010
Fax: (562) 308-0021
1. INTERNET SERVICES.
1.1 INTERNET SERVICES. Subject to the terms and conditions of this
Agreement, during the term of this Agreement, Netgateway will, through the
Netgateway Internet Commerce Center-TM- ("NETGATEWAY ICC") provide to Subscriber
the services described in the Internet Services Order Form(s) (the "INTERNET
SERVICES ORDER FORM(S)") accepted by Netgateway, or substantially similar
services if such substantially similar services would provide Subscriber with
substantially similar benefits (the "INTERNET SERVICES"). All such Internet
Services Order Forms will be incorporated herein by this reference as of the
Acceptance Date set forth in each such form. Netgateway and Subscriber have
mutually agreed or will mutually agree upon the detailed final specifications
(the "SPECIFICATIONS") for the Internet Services and the development timeline
therefor, all of which are or will be set forth on the attached initial Internet
Services Order Form, marked Exhibit "A", and by this reference made a part
hereof.
1.2 AVAILABILITY. Internet Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7) days a
week. Netgateway reserves the right upon reasonable notice to Subscriber to
limit or curtail holiday or weekend availability when necessary for system
upgrades, adjustments, maintenance, or other operational considerations.
1.3 ENHANCEMENTS. General enhancements to existing Internet Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at no additional cost. Any
new features or services that may be developed by Netgateway during the term of
this Agreement that Netgateway intends to offer to Subscriber on a limited or
optional basis may, at Netgateway' option, and subject to Subscriber's
acceptance, be made available to Subscriber at Netgateway's then-current prices
for such new features or services. Enhancements to existing Internet Services
requested by Subscriber that benefit only Subscriber at the time such
enhancements are put into service shall be billed to Subscriber at Netgateway's
standard rates for programming. All enhancements to the Internet Services, and
any new features or services introduced by Netgateway, shall remain the
exclusive proprietary property of Netgateway.
1.4 TRAINING. At no cost to Subscriber, Netgateway shall provide such
onsite training and other assistance, as Netgateway deems necessary to assure
that Subscriber's personnel are able to make effective use of the Internet
Services. On-site training shall take place at such times and places as are
mutually agreeable to the parties hereto.
1.5 SUBSCRIBER DATA.
(a) SUBSCRIBER DATA. Subscriber will timely supply Netgateway, in a
form acceptable to Netgateway, with all data necessary for Netgateway to perform
the ongoing services to be provided hereunder. It is the sole responsibility of
Subscriber to insure the completeness and accuracy of such data.
(b) CONFIDENTIALITY. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber are confidential and shall
take reasonable steps to protect the confidentiality of such records, data,
files and other materials. Netgateway will provide reasonable security
safeguards to limit access to Subscriber's files and records to Subscriber and
other authorized parties.
(c) PROTECTION OF SUBSCRIBER FILES. Netgateway will take reasonable
steps to protect against the loss or alteration of Subscriber's files, records
and data retained by Netgateway, but Subscriber recognizes that events beyond
the control of Netgateway may cause such loss or alteration. Netgateway will
maintain backup file(s) containing all the data, files and records related to
Subscriber. Subscriber's file(s), records and data shall, at no cost to
Subscriber, be released to Subscriber on an occurrence that renders Netgateway
unable to perform hereunder, or upon the termination of this Agreement as
provided herein.
(d) OWNERSHIP OF DATA. Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber and its customers,
including derivative material prepared from such material, are the exclusive
property of the Subscriber. It is the parties' intention that all rights in such
derivative material will vest in Subscriber as works made for hire for inclusion
in Subscriber's collective works under copyright laws of the United States. If,
for any reason, such works are not considered works made for hire, Netgateway
hereby grants and assigns to Subscriber its rights in such derivative material.
The foregoing is not applicable to the parties' rights to design layouts,
templates, displays and icons and/or functional, technical and system
specifications created by Netgateway for Subscriber, which rights will shall be
the property of Netgateway, and which may be licensed by Netgateway to
Subscriber pursuant to the terms of Section 10(b) hereof.
2. FEES AND BILLING.
2.1 FEES. Subscriber will pay all fees and amounts in accordance with
the Internet Service Order Forms.
2.2 BILLING COMMENCEMENT. Billing for Internet Services indicated in
the Internet Services Order Forms, other than the Initial Development Fee, if
any, shall commence on the "OPERATIONAL DATE" indicated in the Internet
Services Order Forms. In the event that Subscriber orders other Internet
Services in addition to those listed in the initial Internet Services Order
Form, billing for such services shall commence on the date Netgateway first
provides such additional Internet Services to Subscriber or as otherwise
agreed to by Subscriber and Netgateway in the applicable Internet Services
Order Form.
2.3 BILLING AND PAYMENT TERMS. Netgateway shall invoice Subscriber
monthly in advance of the provision of Internet Commerce Services, and payment
of such fees will be due within thirty (30) days of the date of each Netgateway
invoice. All payments will be made in U.S. dollars. Late payments hereunder will
accrue interest at a rate of one and one-half percent (1 1/2%) per month, or the
highest rate allowed by applicable law, whichever is lower. If in its reasonable
judgment Netgateway determines that Subscriber is not creditworthy or is
otherwise not financially secure, Netgateway may, upon prior written notice to
Subscriber, modify the payment terms to require full payment before the
provision of Internet Services or other assurances to secure Subscriber's
payment obligations hereunder.
2.4 TAXES, UTILITIES AND EXCLUSIONS. All charges shall be exclusive of
any federal, state or local sales, use, excise, AD VALOREM or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of Internet
Services hereunder. Any such taxes, which may be applicable will be paid by
Subscriber or by Netgateway for Subscriber's account, in which case Subscriber
shall reimburse Netgateway for amounts so paid. Netgateway will provide traffic
reports to Subscriber with respect to burstible capacity. Netgateway is not
responsible for providing connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 COMPLIANCE WITH LAW AND RULES AND REGULATIONS. Subscriber agrees
that Subscriber will comply at all times with all applicable laws and
regulations and Netgateway's general rules and regulations relating to its
provision of Internet Services, currently included herein as Section 10, which
may be updated and provided by Netgateway to Subscriber from time to time
("RULES AND REGULATIONS"). Subscriber acknowledges that Netgateway exercises no
control whatsoever over the content contained in or passing through the
Subscriber's web site or mall ("INTERNET CENTERS"), and that it is the sole
responsibility of Subscriber to ensure that the information it transmits and
receives complies with all applicable laws and regulations.
3.2 ACCESS AND SECURITY. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the Internet Services),
and third party claims that may result from its use of, or access to, the
Netgateway Internet Commerce Center-TM-, including, but not limited to, any
unauthorized use or any access devices provided by Netgateway hereunder.
3.3 NO COMPETITIVE SERVICES. Subscriber may not at any time permit any
Internet Services to be utilized for the provision of any services that compete
with any Netgateway services, without Netgateway's prior written consent.
3.4 INSURANCE.
(a) MINIMUM SUBSCRIBER LEVELS. Subscriber will keep in full force and
effect during the term of this Agreement: (i) comprehensive general liability
insurance in an amount not less than $5 million per occurrence for bodily injury
and property damage; (ii) employer's liability insurance in an amount not less
than $1 million per occurrence; and
PAGE 1
<PAGE>
(iii) workers' compensation insurance in an amount not less than that
required by applicable law. Subscriber also agrees that it will be solely
responsible for ensuring that its agents (including contractors and
subcontractors) maintain, other insurance at levels no less than those
required by applicable law and customary in Subscriber's industries.
(b) MINIMUM NETGATEWAY LEVELS. Netgateway will keep in full force and
effect during the term of this Agreement: (i) comprehensive general liability
insurance in an amount not less than $1 million per occurrence for bodily injury
and property damage; (ii) employer's liability insurance in an amount not less
than $1 million per occurrence; and (iii) workers' compensation insurance in an
amount not less than that required by applicable law. Netgateway also agrees
that it will be solely responsible for ensuring that its agents (including
contractors and subcontractors) maintain, other insurance at levels no less than
those required by applicable law and customary in Netgateway's industry.
(c) CERTIFICATES OF INSURANCE. Prior to the Operational Date, each
party will furnish to the other certificates of insurance which evidence the
minimum levels of insurance set forth above, and will notify the other party in
writing in the event that any such insurance policies are cancelled.
(d) NAMING PARTIES AS ADDITIONAL INSUREDS. Each of Subscriber and
Netgateway agrees that prior to the Operational Date, it will cause its
insurance provider(s) to name the other party as an additional insured and
notify the other party in writing as of the effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 CONFIDENTIAL INFORMATION. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology, and products, including
the terms and conditions of this Agreement ("CONFIDENTIAL INFORMATION").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors as reasonably necessary), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such information.
4.2 EXCEPTIONS. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 WARRANTIES BY SUBSCRIBER.
(a) SUBSCRIBER'S BUSINESS. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data, and
information used by Subscriber in connection with this Agreement as well as
Subscriber's and its permitted customers' and users' use of the eCommerce
Services (collectively, "SUBSCRIBER'S BUSINESS") does not as of the
Operational Date, and will not during the term of this Agreement, operate in
any manner that would violate any applicable law or regulation.
(ii) Subscriber owns or has the right to use all material
contained in the Subscriber's web site, including all text, graphics, sound,
video, programming, scripts, and applets; and
(iii) The use, reproduction, distribution, and transmission of
the web site, or any information or materials contained in it does not (A)
infringe or misappropriate any copyright, patent, trademark, trade secret, or
any other proprietary rights of a third party; or (B) constitute false
advertising, unfair competition, defamation, an invasion of privacy, or
violate a right of publicity.
(b) RULES AND REGULATIONS. Subscriber has read the Rules and
Regulations (Section 10 below) and represents and warrants that Subscriber and
Subscriber's Business are currently in full compliance with the Rules and
Regulations, and will remain so at all times during the term of this Agreement.
(c) BREACH OF WARRANTIES. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any other
remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent any
harm to Netgateway or its business.
5.2 WARRANTIES AND DISCLAIMERS BY NETGATEWAY.
(a) NO OTHER WARRANTY. THE INTERNET SERVICES ARE PROVIDED ON AN "AS IS"
BASIS, AND SUBSCRIBER'S USE OF THE INTERNET SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE ECOMMERCE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE OR COMPLETELY SECURE.
(b) DISCLAIMER OF ACTIONS CAUSED BY AND/OR UNDER THE CONTROL OF THIRD
PARTIES. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTER AND OTHER PORTIONS OF THE INTERNET. SUCH
FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR
CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE
THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S SUBSCRIBERS'
CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED.
ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT
DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, NETGATEWAY CANNOT GUARANTEE
THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 EXCLUSIONS. EXCEPT AS OTHER WISE PROVIDED HEREIN, IN NO EVENT WILL
EITHER PARTY BE LIABLE TO THE OTHER OR TO ANY THIRD PARTY FOR ANY CLAIMS ARISING
OUT OF OR RELATED TO THIS AGREEMENT, SUBSCRIBER'S BUSINESS OR OTHERWISE, AND ANY
LOST REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR
SERVICES, SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS
OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR SUBSCRIBER'S BUSINESS,
EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.2 LIMITATIONS. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND
AGENTS SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS OR
DAMAGE, WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF
SERVICE DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS,
STRIKES, WALK-OUTS, EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES (EXCEPT
FINANCIAL) OVER WHICH NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS
AGAINST WHOM LIABILITY IS SOUGHT, HAVE NO REASONABLE CONTROL, OR FOR LOSS OR
DAMAGE, DIRECT OR INDIRECT, RESULTING FROM INACCURACIES, ERRONEOUS STATEMENTS,
ERRORS OF FACTS, OMISSIONS, OR ERRORS IN THE TRANSMISSION OR DELIVERY OF
INTERNET SERVICES, OR ANY DATA PROVIDED AS A PART OF THE INTERNET SERVICES
PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT CAUSED BY THE NEGLIGENCE OR
WILFUL MISCONDUCT OF NETGATEWAY.
6.3 MAXIMUM LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, NETGATEWAY'S MAXIMUM AGGREGATE LIABILITY TO SUBSCRIBER RELATED TO OR
IN CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID BY
SUBSCRIBER TO NETGATEWAY HEREUNDER.
6.4 TIME FOR MAKING CLAIMS. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS EMPLOYEES, SUCCESSORS OR
ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN TWO (2) YEARS OF THE OCCURRENCE GIVING RISE TO SUCH CLAIM OR
BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT THE
LIMITATION OF NETGATEWAY'S LIABILITY SET FORTH IN SECTION 6 OR ELSEWHERE IN THIS
AGREEMENT.
6.5 SUBSCRIBER'S INSURANCE. [Reserved.]
6.6 BASIS OF THE BARGAIN; FAILURE OF ESSENTIAL PURPOSE. Subscriber
acknowledges that Netgateway has set its prices and entered into this Agreement
in reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 NETGATEWAY'S INDEMNIFICATION OF SUBSCRIBER.
(a) Netgateway will indemnify, defend and hold Subscriber, its
directors, officers, affiliates, employees and agents harmless from and against
any and all third party claims for any costs, liabilities, losses and expenses
(including, but not limited to, reasonable attorneys' fees) resulting from or
arising out of Netgateway's breach of any provision of this Agreement.
(b) Netgateway will indemnify, defend and hold Subscriber harmless from
and against any and all costs, liabilities, losses and expenses (including, but
not limited to, reasonable attorneys' fees) (collectively, "LOSSES") resulting
from any claim, suit, action, or proceeding (each, an "ACTION") brought against
Subscriber alleging the infringement of any third party registered U.S.
copyright or issued U.S. patent resulting from the provision of Internet
Services pursuant to this Agreement (but excluding any infringement
contributorily caused by Subscriber's Business).
PAGE 2
<PAGE>
7.2 SUBSCRIBER'S INDEMNIFICATION OF NETGATEWAY. Subscriber will
indemnify, defend and hold Netgateway, its affiliates and customers harmless
from and against any and all Losses resulting from or arising out of
Subscriber's breach of any provision of this Agreement or any Action brought
against Netgateway, its directors, employees, affiliates or Subscribers alleging
with respect to the Subscriber's Business: (a) infringement or misappropriation
of any intellectual property rights; (b) defamation, libel, slander, obscenity,
pornography or violation of the rights of privacy or publicity; (c) spamming, or
any other offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or (d) any violation of any other applicable law or regulation.
7.3 NOTICE. Each party will provide the other party, prompt written
notice of the existence of any such event of which it becomes aware, and an
opportunity to participate in the defense thereof.
8. DISPUTE RESOLUTION.
8.1 PROCEDURES. It is the intent of the parties that all disputes
arising under this Agreement be resolved expeditiously, amicably, and at the
level within each party's organization that is most knowledgeable about the
disputed issue. The parties understand and agree that the procedures outlined in
this Paragraph 8 are not intended to supplant the routine handling of inquiries
and complaints through informal contact with customer service representatives or
other designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "DISPUTE" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as provided in paragraph 8.5 below, may be submitted to
arbitration, the parties shall first follow the informal and escalating
procedures set forth below.
(a) The complaining party's representative will notify the other
party's representative in writing of the dispute, and the non-complaining party
will exercise good faith efforts to resolve the matter as expeditiously as
possible.
(b) In the event that such matter remains unresolved thirty (30) days
after the delivery of the complainant party's written notice, a senior
representative of each party shall meet or confer within ten (10) business days
of a request for such a meeting or conference by either party to resolve such
matter.
(c) In the event that the meeting or conference specified in (b) above
does not resolve such matter, the senior officer of each party shall meet or
confer within ten (10) business days of the request for such a meeting or
conference by either party to discuss and agree upon a mutually satisfactory
resolution of such matter.
(d) If the parties are unable to reach a resolution of the dispute
after following the above procedure, or if either party fails to participate
when requested, the parties may proceed in accordance with paragraph 8.2 below.
8.2 BINDING ARBITRATION. Except as provided in paragraph 8.5 below, any
dispute arising under this Agreement shall, after utilizing the procedures in
paragraph 8.1, be resolved by final and biding arbitration in Los Angeles,
California, before a single arbitrator selected by, and in accordance with the
rules of commercial arbitration of, the American Arbitration Association or as
otherwise provided in Paragraph 11.6. Each party shall bear its own costs in the
arbitration, including attorneys' fees, and each party shall bear one-half of
the cost of the arbitrator. Arbitrators will be bound to apply California law,
and where applicable, federal statutory law. The parties will be afforded a
reasonable period of time to conduct discovery prior to the arbitration. A court
reporter will be present at all arbitration proceedings in order to transcribe
them and such transcription will be the official record of such proceedings for
purposes of any judicial enforcement or review proceeding.
8.3 ARBITRATOR'S AUTHORITY. The arbitrator shall have the authority to award
such damages as are not prohibited by this Agreement and may, in addition and in
a proper case, declare rights and order specific performance, but only in
accordance with the terms of this Agreement. The arbitrators' decision will
specify the basis for any award and the types of damages awarded.
8.4 ENFORCEMENT OF ARBITRATOR'S AWARD. Any Party may apply to a court
of general jurisdiction to enforce a arbitrator's award, and if enforcement is
ordered, the party against which the order is issued shall pay the costs and
expenses of the other party in obtaining such order, including responsible
attorneys' fees.
8.5 ACCESS TO COURTS. Notwithstanding the provisions of paragraphs 8.1
and 8.2 above, any action by Netgateway to enforce its rights under Paragraph
10.3 of this Agreement or to enjoin any infringement of the same by Subscriber,
an action to compel compliance with Paragraph 4 or this Paragraph 8 or an action
seeking injunctive or equitable relief may be commenced in the state of federal
courts of Los Angeles, California, and each party consents to personal
jurisdiction and venue in such courts for such actions.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement will be effective on the date first above
written and will terminate three (3) years ("INITIAL TERM") from the date
Subscriber begins processing live data through Netgateway ICC-TM-, unless
earlier terminated according to the provisions of this Section 9. This Agreement
will automatically renew for an additional term of one (1) year unless a party
hereto elects not to so renew and notifies the other party in writing of such
election by a date, which is six (6) months prior to the lapse of the Initial
Term.
9.2 TERMINATION. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within ten (10) days after receipt
of written notice of the same, except in the case of failure to pay fees, which
must be cured within five (5) days after receipt of written notice, in which
case the non- breaching party may terminate this Agreement by giving the
breaching party ninety (90) days' written notice of its intent to terminate;
(ii) the other party becomes the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency, receivership, liquidation,
or composition for the benefit of creditors; or (iii) the other party becomes
the subject of an involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing.
9.3 NO LIABILITY FOR TERMINATION. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with its
terms.
9.4 EFFECT OF TERMINATION. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway will immediately cease providing
the Internet Services; (b) any and all payment obligations of Subscriber under
this Agreement will become due immediately; and (c) within thirty (30) days
after such expiration or termination, each party will return all Confidential
Information of the other party in its possession at the time of expiration or
termination and will not make or retain any copies of such Confidential
Information except as required to comply with any applicable legal or accounting
record keeping requirement.
9.5 SURVIVAL. The following provisions will survive any expiration or
termination of the Agreement: Sections 2, 3, 4, 5, 6, 7, 8, 9 and 10.
10. USE OF INTERNET SERVICES - RULES AND REGULATIONS.
10.1 PROPRIETARY SYSTEMS. (a) Except as set forth in Section 10.1(b)
hereof, Subscriber acknowledges that the software systems utilized by Netgateway
in the provision of Internet Services hereunder, including all enhancements
thereto, and all screens and formats used in connection therewith are the
exclusive proprietary property of Netgateway, and Subscriber shall not publish,
disclose, display, provide access to or otherwise make available any Netgateway
software or products thereof, or any screens, formats, reports or printouts
used, provided, produced or supplied from or in connection therewith, to any
person or entity other than an employee of Subscriber without the prior written
consent of, and on terms acceptable to Netgateway, which consent shall not be
unreasonably withheld; provided, however, that Subscriber may disclose to a
governmental or regulatory agency or to customers of Subscriber any information
expressly prepared and acknowledge in writing by Netgateway as having been
prepared for disclosure to such governmental or regulatory agency or to such
customers. Neither party shall disclose Subscriber's use of Internet Services in
any advertising or promotional materials without the prior written consent to
such use, and approval of such materials, by the other.
(b) If Netgateway's business operations shall cease for any reason
other than in connection with a sale of all or substantially all of its capital
stock or assets, then solely with respect to the Internet Services that are
being provided to Subscriber pursuant to the eCommerce Services Order Form No. 1
(the "Licensed Services"), and at any time with respect to the license granted
under Paragraph 1.5(d), Netgateway hereby grants to Subscriber, subject to the
terms and conditions of this Agreement, the non-exclusive, non-transferable
right to use and to permit third parties to use in connection with providing
Internet services in perpetuity the software systems related to the Licensed
Services, including all software source for compiled programs, all stored
procedures and application files and databases and all documentation and
relevant explanations relating thereto.
10.2 USE OF SERVICES PERSONAL TO SUBSCRIBER. [RESERVED.]
10.3 SURVIVAL OF OBLIGATIONS. The obligations of this paragraph 10
shall survive termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway' software or copies
thereof, or the unauthorized use of Internet Services would cause irreparable
harm to Netgateway for which there is no adequate remedy at law. Subscriber
therefore agrees that in the event of such unauthorized disclosure or use,
Netgateway may, at its discretion and at Subscriber's expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Netgateway, in its reasonable, good faith judgement, determines that
there is a material risk of such unauthorized disclosure or use, it may demand
immediate assurances, satisfactory to Netgateway, that there will be no such
unauthorized disclosure or use. In the absence of such assurance, Netgateway may
immediately terminate this Agreement and take such other steps as it deems
necessary. The rights of Netgateway hereunder are in addition to any other
remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 FORCE MAJEURE. Except for the obligation to pay money, neither
party will be liable for any failure or delay in its performance under this
Agreement due to any cause beyond its reasonable control, including act of war,
acts of God, earthquake, flood, embargo, riot, sabotage, labor shortage or
dispute, governmental act or failure of the
PAGE 3
<PAGE>
Internet, provided that the delayed party: (a) gives the other party prompt
notice of such cause; and (b) uses its reasonable commercial efforts to
correct promptly such failure or delay in performance.
11.2 NO LEASE. This Agreement is a services agreement and is not
intended to and will not constitute a lease of any real or personal property.
Subscriber acknowledges and agrees that (i) it has been granted only a license
to use Netgateway's ICC and any equipment provided by Netgateway in accordance
with this Agreement, (ii) Subscriber has not been granted any real property
interest in the Netgateway's ICC, and (iii) Subscriber has no rights as a tenant
or otherwise under any real property or landlord/tenant laws, regulations, or
ordinances.
11.3 MARKETING. Subscriber agrees that Netgateway may refer to
Subscriber by trade name, and may briefly describe Subscriber's Business, in
Netgateway's marketing materials and web site.
11.4 GOVERNMENT REGULATIONS. Subscriber will not export, re-export,
transfer, or make available, whether directly or indirectly, any regulated item
or information to anyone outside the U.S. in connection with this Agreement
without first complying with all export control laws and regulations which may
be imposed by the U.S. Government and any country or organization of nations
within whose jurisdiction Subscriber operates or does business.
11.5 NON-SOLICITATION. During the period beginning on the Operational
Data and ending on the first anniversary of the termination or expiration of
this Agreement in accordance with its terms, each of Subscriber and Netgateway
agrees that it will not, and will ensure that its affiliates do not, directly or
indirectly, solicit or attempt to solicit for employment any persons employed by
the other party to this Agreement during such period.
11.6 GOVERNING LAW; SEVERABILITY; WAIVER. This Agreement is made under
and will be governed by and construed in accordance with the laws of the State
of California (without regard to that body of law controlling conflicts of law)
and specifically excluding from application to this Agreement that law known as
the United Nations Convention on the International Sale of Goods. In the event
any provision of this Agreement is held by a tribunal of competent jurisdiction
to be contrary to the law, the remaining provisions of this Agreement will
remain in full force and effect. The waiver of any breach or default of this
Agreement will not constitute a waiver of any subsequent breach or default, and
will not act to amend or negate the rights of the waiving party.
11.7 ASSIGNMENT; NOTICES. Neither Netgateway nor Subscriber may assign
its rights or delegate its duties under this Agreement, either in whole or in
part, without prior written consent, except that either party may assign this
Agreement in whole as part of a corporate reorganization, consolidation, merger
or sale of substantially all of its assets. Any attempted assignment or
delegation without such consent will be void. This Agreement shall be binding
and inure to the benefit of each party's successors and permitted assigns. Any
notice or communication required or permitted to be given hereunder may be
delivered by hand, deposited with an overnight courier, sent by confirmed
facsimile, or mailed by registered or certified mail, return receipt requested,
postage prepaid, in each case to the address of the receiving party indicated on
the signature page hereof, or at such other address as may hereafter be
furnished in writing by either party hereto to the other. Such notice will be
deemed to have been given as of the date it is delivered, mailed or sent,
whichever is earlier.
11.8 RELATIONSHIP OF PARTIES. Netgateway and Subscriber are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Netgateway
and Subscriber. Neither Netgateway nor Subscriber will have the power to bind
the other or incur obligations on the other's behalf without the other's prior
written consent, except as otherwise expressly provided herein.
11.9 SUBCONTRACTORS. The provision of Internet Services hereunder shall
be completed by Netgateway. To the extent that Netgateway seeks to subcontract
all or a portion of the Internet Services to a third party provider, such
subcontractor shall be approved by Subscriber, which approval shall not be
unreasonable withheld.
11.10 NO CONFLICT. To the best of Netgateway's knowledge, there exists
no actual or potential conflict between Netgateway and Subscriber, in connection
with their business or the Internet Services. To the extent that such an actual
or potential conflict shall arise during the term of this Agreement, Netgateway
shall immediately inform Subscriber of such actual or potential conflict in
writing. To the best of Subscriber's knowledge, there exists no actual or
potential conflict between Netgateway and Subscriber, in connection with their
business or the Internet Services. To the extent that such an actual or
potential conflict shall arise during the term of this Agreement, Subscriber
shall immediately inform Netgateway of such actual or potential conflict in
writing.
11.11 EQUAL EMPLOYMENT OPPORTUNITY. Netgateway is an equal opportunity
employer. Netgateway has and shall continue to comply with all applicable
federal and state laws prohibiting discrimination in all aspects of its
business, including the provision of the Internet Services hereunder.
11.12 ENTIRE AGREEMENT; AMENDMENTS; COUNTERPARTS. This Agreement,
including all documents incorporated herein by reference, constitutes the
complete and exclusive agreement between the parties with respect to the subject
matter hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. This Agreement shall not be amended or modified
except by a written agreement signed by the parties hereto; provided, however,
that Subscriber may amend the general scope of the Internet Services to be
provided hereunder upon thirty (30) days' written notice to Netgateway; and
provided further, that in the event of such amendment, the parties shall make
such adjustment to price and/or delivery as the parties shall deem necessary and
appropriate. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original, but all of which together shall constitute one
and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the
foregoing and all documents incorporated therein and agree and accept such
terms effective as of the date first above written.
SUBSCRIBER
Signature: Signature:
------------------------- --------------------------
Print Name: Print Name:
------------------------- ------------------------
Title:
-------------------------
NETGATEWAY
Signature: Signature:
------------------------- --------------------------
Print Name: Print Name:
------------------------- ------------------------
Title:
-------------------------
PAGE 4
<PAGE>
EXHIBIT "A"
INTERNET SERVICES ORDER FORM
<PAGE>
NETGATEWAY
INTERNET SERVICES ORDER FORM
CUSTOMER NAME: BERGEN BRUNSWIG CORPORATION
FORM DATE: OCTOBER 25, 1999
FORM NO.: 001
GENERAL INFORMATION:
1. By submitting this Internet Services Order Form ("FORM") to Netgateway,
Subscriber hereby places an order for the Internet Services described
herein pursuant to the terms and conditions of the Internet Services
Agreement between Subscriber and Netgateway (the "IS AGREEMENT").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first
begins to process transactions through the Netgateway Internet Commerce
Center, whichever occurs first.
3. Netgateway will provide the Internet Services pursuant to the terms and
conditions of the IS Agreement, which incorporates this Form. The terms
of this Form supersede, and by accepting this Form Netgateway hereby
rejects, any conflicting or additional terms provided by Subscriber in
connection with Netgateway's provision of the Internet Services. If
there is a conflict between this Form and any other Form provided by
Subscriber and accepted by Netgateway, the Form with the latest date
will control.
4. Netgateway will not be bound by or required to provide Internet
Services pursuant to this Form or the IS Agreement until each is signed
by an authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Submitted By: Operational Date:
---------------------------- ---------------
(AUTHORIZED SIGNATURE)
Print Name:
----------------------------
Title: ----------------------------
NETGATEWAY ACCEPTANCE
Date:
- ------------------------------------------- ----------------------------
(AUTHORIZED SIGNATURE:
<PAGE>
NETGATEWAY
INTERNET SERVICES ORDER FORM
CUSTOMER NAME: BERGEN BRUNSWIG CORPORATION
FORM DATE: OCTOBER 25, 1999
FORM NO.: 001
TERMS:
1. DEVELOPMENT FEES. The development fees for the Internet Services shall
be as set forth on the Statement of Work and Project Specifications
annexed hereto as Schedule 1, and shall be payable in accordance with
the terms set forth thereon.
2. PROJECT SPECIFICATIONS. A Statement of Work and Project Specifications
for the Internet Services is annexed hereto as Schedule 1 and
incorporated herein by this reference.
3. ADDITIONAL FEES. Additional fees, including without limitation,
pharmacy set-up fees, supported content changes and domain name
registrations shall be as set forth on Schedule 1 hereto.
4. DEVELOPMENT TIMELINE. Development of the Internet Services shall be
completed on or before December 31, 1999. Netgateway intends to begin
deploying on-line pharmacies immediately after December 31, 1999.
5. PUBLICITY. Both parties are public companies and can be affected by the
manner or content of public announcements concerning this relationship.
Neither party shall make any public announcement of this Agreement or
of the relationship they have entered into without the prior written
consent of the other.
SUBSCRIBER'S INITIALS ________
<PAGE>
SCHEDULE 1
STATEMENT OF WORK AND PROJECT SPECIFICATIONS
<PAGE>
PROJECT APPROACH AND SCOPE
In support of the myGNP.com objectives, an approach to activities, deliverables
and timing has been developed. We intend to execute this project in as rapid a
manner as possible in order to launch as many pharmacy sites as possible before
the end of the year.
The following timeline depicts major MYGNP.COM project activities with
appropriate milestones requiring client written approval:
[GRAPH]
The above timeline is very aggressive and will need to be carefully managed. In
order for the project to be completed on time and within budget, Netgateway will
require Bergen Brunswig's support and cooperation to prevent and resolve issues.
SCOPE
Requirements for the project were detailed in the RFP. These requirements are
listed below with any additional commentary. IF ADDITIONAL REQUIREMENTS ARE
UNCOVERED
<PAGE>
Schedule 1 - Statement of work and project specification page 2
DURING THE FIRST SET OF ACTIVITIES, THEY WILL BE SCOPED AND BILLED IN
ACCORDANCE TO THEIR COMPLEXITY. ADDITIONALLY, THEIR IMPACT ON THE TIMELINE WILL
BE COMMUNICATED BROADLY.
As defined, myGNP.com is a standalone system requiring no real-time interfaces
to production systems. The system will however be linked to other Bergen
Brunswig applications using http protocols. IF INTEGRATION POINTS ARE UNCOVERED,
THEY WILL BE SCOPED AND BILLED IN ACCORDANCE TO THEIR COMPLEXITY.
We will provide burstible at 1 megabit per second capacity bandwidth for Bergen
Brunswig's website at no additional charge. Should Bergen Brunswig need
additional bandwidth, we will provide or make arrangements to provide such
additional bandwidth to Bergen Brunswig at our cost and invoice Bergen Brunswig
for such excess bandwidth and/or use beyond a 1 megabit per second burstible
line. We will provide traffic reports to Bergen Brunswig with respect to
burstible capacity.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
OBJECTIVE 1 COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Year 2000 compliant. We have recently completed a review of all third party development
tools and have certified that all tools are Y2K compliant
- ---------------------------------------------------------------------------------------------------------------------
Provision for non-technical, complete, and This documentation will be developed specifically for Bergen
easy-to-read user documentation. (Welcome Brunswig. Production costs will be an additional cost.
Package)
- ---------------------------------------------------------------------------------------------------------------------
Provision for on-line user documentation. Standard feature of our underlying technology platform
- ---------------------------------------------------------------------------------------------------------------------
Ability to limit a store's participation and OPTION 1: Pharmacist will have no direct access to the system.
functions based on the option for which they Changes will be made by Bergen Brunswig and submitted to Netgateway
have opted. OPTION 2: Pharmacists will be able to change taglines, update
images, and choose from 3 or more program spots
OPTION 3: Pharmacists will have all functionality defined in Option
2, access National Coupons, add additional content pages, and
link to the prescription system
Core store information is only changeable by Bergen Brunswig.
Change requests will go to Netgateway daily.
- ---------------------------------------------------------------------------------------------------------------------
Ability to format new pharmacy web sites with Will be available via links and forms
text and graphics from a secure site.
- ---------------------------------------------------------------------------------------------------------------------
Dynamic update ability for National Specials All option 3 stores will be propagated with National Specials
including coupons and product images.
- ---------------------------------------------------------------------------------------------------------------------
Dynamic update ability for store specials Fully supported
including coupons and product images.
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 1 - Statement of work and project specification page 3
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Ability to produce standard reports on web Each option 2 and 3 store will be able to retrieve site statistic
site activity. including page views for each individual page
General admin system will report at the aggregate level all
activity, billing information and change activity (including
monies paid to Netgateway directly)
- ---------------------------------------------------------------------------------------------------------------------
Password security at store, and GO levels. Implement division #, account #, and NABP # and password
- ---------------------------------------------------------------------------------------------------------------------
Provide links to other sites (health content, Part of the template system
E-commerce, etc.) based on store specific Online advertising management system will be covered in a separate
options. proposal
- ---------------------------------------------------------------------------------------------------------------------
Provide capability for consumers to send Via fill out forms that can be faxed or emailed to pharmacies
Email to the stores, based on store specific
options.
- ---------------------------------------------------------------------------------------------------------------------
Dynamic update ability for free form pages Yes we can do the work in house at $75/hour.
including text and graphics, based on store We will work with Bergen to develop alternative costing packages
specific options.
All work will be billed directly to the pharmacy. This billing
will be reported to Bergen monthly.
- ---------------------------------------------------------------------------------------------------------------------
Provide maintenance for the entire site on a Schedule and costing will be determined by Netgateway and Bergen
minimum schedule of twice per year to keep Brunswig
the site looking fresh and the navigation
current.
- ---------------------------------------------------------------------------------------------------------------------
Ability to link to the store locator function Fully supported
using the store addresses provided and
maintained by Bergen Brunswig.
- ---------------------------------------------------------------------------------------------------------------------
Link store specific URL's to the store's home Fully supported page
on request.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
OBJECTIVE 2 COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Provide administrative support to GNP Fully operational design staff in house. Initial setup is part of
pharmacies for initial development of web "set-up fees." Additional support will be charged at $75/hour and
pages. billed to the pharmacy directly
- ---------------------------------------------------------------------------------------------------------------------
Provide ongoing support to GNP pharmacies for Fully supported
maintenance of existing web pages.
- ---------------------------------------------------------------------------------------------------------------------
Ability to accept requests via Email, phone, Fully supported
fax or letter.
- ---------------------------------------------------------------------------------------------------------------------
Ability to turn around maintenance requests Netgateway has a dedicated department to building stores.
within 48 hours. Reasonable SLA will be determined at a later date.
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 1 - Statement of work and project specification page 4
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Provide confirmation of update to GNP store Processes, procedures and service level agreements will be
with a copy to GNP department in Orange. established
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
OBJECTIVE 3 COMMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Provide 24 by 7 availability for the GNP web Owners will be able to make changes or updates at anytime
site.
- ---------------------------------------------------------------------------------------------------------------------
Provide 24 by 7 help line support for Bergen Optional private branding can also be provided by our wholly owned
Brunswig technical departments. (First line centers. Pricing will be determined based on specific requirements.
customer support will be provided by the
Bergen Brunswig Help Desk.)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PROJECT FEES:
Per our original response to your RFP, we agree to a fixed bid development cost
of $205,000. This price includes hosting the application, building all site
functionality contained within the RFP, developing the administration
components, and setting up a support account with our call center. Direct
project expenses will be billed at cost.
ADDITIONAL COSTS ARE PROVIDED IN THE TABLE BELOW:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Cost Component One Time Cost Recurring cost
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Option 2 Pharmacy Setup $180 $15.95/Month
- ---------------------------------------------------------------------------------------------------------------------
Option 3 Pharmacy Setup $230 $34.95/Month
- ---------------------------------------------------------------------------------------------------------------------
Netgateway supported content changes $75/hr
- ---------------------------------------------------------------------------------------------------------------------
Personalized domain name $120/store*
registration
- ---------------------------------------------------------------------------------------------------------------------
Training in addition to 3 days $500/day
provided
- ---------------------------------------------------------------------------------------------------------------------
Private call center branding TBD TBD
- ---------------------------------------------------------------------------------------------------------------------
Outsourced system administration TBD TBD
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* this price includes a 2-year Internic Registration Fee
As agreed in our meeting on October 5th, 1999, payment terms regarding all
development fees will be as follows:
1. DEVELOPMENT FEES*:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
% of work Complete Corresponding $ Remitted $ Milestone Target Date
amount
- ---------------------------------------------------------------------------------------------------------------------
<PAGE>
Schedule 1 - Statement of work and project specification page 5
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
15% $30,750 $15,375 Signoff - Functional November 15, 1999
Design
- ---------------------------------------------------------------------------------------------------------------------
30% $61,500 $30,750 Signoff - System Design November 26, 1999
- ---------------------------------------------------------------------------------------------------------------------
40% $82,000 $41,000 User Acceptance Test December 13, 1999
- ---------------------------------------------------------------------------------------------------------------------
15% $30,750 $15,375 + Pharmacies Loaded December 17, 1999
- ---------------------------------------------------------------------------------------------------------------------
$102,500 Post Implementation December 31, 1999
Review
- ---------------------------------------------------------------------------------------------------------------------
Total $102,500 $205,000
- ------------------------------------------------------------
</TABLE>
* if additional scope is added, it will be billed on a separate payment schedule
2. STORE SETUP AND MONTHLY FEES:
Will be billed monthly for completed work.
3. DIRECT EXPENSES
Normal project expenses (e.g. travel, copying fees, etc) will be billed at cost
and receipts will be provided upon request.
Pharmacy changes will be billed directly to the requesting pharmacy. Monthly
billing activity reports will be provided to Bergen Brunswig.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Netgateway, Inc:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
Our report dated August 23, 1999, contains an explanatory paragraph that states
that the Company's planned principal operations have commenced, however, minimal
revenues have been generated. Additionally, the Company continues to incur net
losses and has continuing financial needs. These matters raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ KPMG LLP
Los Angeles, California
November 10, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Members
Infobahn Technologies, LLC (dba Digital Genesis):
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG LLP
Los Angeles, California
November 10, 1999
<PAGE>
EXHIBIT 23.3
November 10, 1999
To Spartan Multimedia, Inc.
Dear Sirs: RE: NETGATEWAY, INC.
I refer to the prospectus of the above company with the filing no. of 333-79751
relating to the sale and issue of Netgateway common stock.
I consent to the use in the above mentioned prospectus of my report dated
April 19, 1999 to the shareholders of Spartan Multimedia Inc. on the following
financial statements:
Balance sheet as at August 31, 1998:
Statements of earnings and retained earnings and changes in financial
position for the period ended August 31, 1998.
I consent to reference to my firm under the heading "Experts" in the prospectus.
I report that I have read the prospectus and have no reason to believe that
there are any misrepresentations in the information contained therein that is
derived from the financial statements upon which I have reported or that is
within my knowledge as a result of my audit of such financial statements.
/s/ Allan Hogenson
- ----------------
Allan Hogenson
CHARTERED ACCOUNTANT
<PAGE>
EXHIBIT 23.4
The Board of Directors
Video Calling Card, Inc.
We consent to the inclusion of our reports dated January 21, 1998 and
September 12, 1997, with respect to the balance sheets of Video Calling Card,
Inc. (a development stage company) as of December 31, 1997 and 1996,
December 31, 1996 and 1995, respectively, and the related statements of
operations, stockholders' equity, and cash flows for the years ended
December 31, 1997, 1996 and the period from inception (April 13, 1995) through
December 31, 1995, which reports appear in the Form S-1 of Netgateway, reference
number: 333-79751 and reference to our firm under the heading "Experts" in the
prospectus.
/s/ Ted A. Madsen
Certified Public Accountant
Dated: November 10, 1999
