<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1999
REGISTRATION NO. 333-79751
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NETGATEWAY, INC.
(Exact name of Registrant as specified in its charter)
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<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:
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<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 OCTOBER 14, 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 October 12, 1999, the last reported sale
price of our common stock on the OTC Bulletin Board was $7.625. We anticipate
that the public offering price per share will be between $8.00 and $10.00.
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
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PAGE
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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.................................................................................................... 77
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 23.
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
4
<PAGE>
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 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 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.
5
<PAGE>
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.
OUR RECENT FINANCIAL DATA
For a discussion of our preliminary unaudited consolidated revenues for the
three months ended September 30, 1999, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Financial Data."
------------------------
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 2,054,066
SHARES OF COMMON STOCK ARE OUTSTANDING ON THE DATE OF THIS PROSPECTUS, AND
- UP TO AN AGGREGATE OF 1,634,174 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,
- THE ISSUANCE OF 50,000 SHARES OF COMMON STOCK VALUED AT $400,000 TO A
CUSTOMER IN JULY 1999,
- OUR SUMMER 1999 PRIVATE PLACEMENT OF SECURITIES,
- 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 OF 1,200,000 SHARES OF COMMON STOCK SUBJECT TO FORFEITURE 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."
6
<PAGE>
THE OFFERING
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Common stock offered............ 3,000,000 shares
Common stock outstanding
immediately prior to this
offering...................... 12,482,598 shares(1)
Common stock outstanding
immediately following this
offering...................... 15,482,598 shares(1)
Use of proceeds................. We intend to use the net proceeds of this offering to
repay indebtedness, 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 2,054,066 shares of common stock are
outstanding on the date of this prospectus, up to an aggregate of 1,182,745
shares of common stock issuable upon the exercise of outstanding warrants,
and up to 451,429 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, 1998 and 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 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 June 30, 1999 is adjusted to
reflect:
- the issuance of 50,000 shares of common stock valued at $400,000 to a
customer in July 1999;
- our receipt of $3.2 million of the net proceeds from our Summer 1999
private placement of securities received by us after June 30, 1999;
- 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 of 1,200,000 shares of common stock subject to forfeiture in
exchange for outstanding stock options under our stock option plans.
The post-offering pro forma, as adjusted balance sheet data as of June 30, 1999
is adjusted to reflect:
- the issuance of 50,000 shares of common stock valued at $400,000 to a
customer in July 1999;
- our receipt of $3.2 million of the net proceeds from our Summer 1999
private placement of securities received by us after June 30, 1999;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999;
- the issuance of 1,200,000 shares of common stock subject to forfeiture 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
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<TABLE>
<CAPTION>
PERIOD FROM MARCH 4, 1998
(INCEPTION) THROUGH YEAR ENDED
JUNE 30, 1998 JUNE 30, 1999
---------------------------- ----------------------------
ACTUAL ACTUAL
------------- ------------- CUMULATIVE PERIOD
FROM MARCH 4, 1998
(INCEPTION)
PRO FORMA THROUGH JUNE 30,
PRO FORMA ------------- 1999(2)
------------- (UNAUDITED) ------------------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 2,800 $ 124,325 $ 143,426 $ 146,867 $ 146,226
Total operating expenses........ 4,555,459 4,711,795 10,047,975 10,225,882 14,603,434
Interest expense................ 19,277 19,277 523,045 523,045 542,322
Loss before extraordinary
item.......................... (4,571,936) (4,606,747) (10,482,323 (1) (10,656,789 (1) (15,054,259)(1)
Loss before extraordinary item
per weighted average common
share outstanding (basic and
diluted)...................... (0.84) (0.81) (1.18 (1) (1.20 (1) (1.87)(1)
Weighted average common shares
outstanding (basic and
diluted)...................... 5,416,242 5,721,327 8,912,041 8,912,041 8,058,886
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------
PRO FORMA PRO FORMA,
JUNE 30, 1998 ACTUAL ----------- AS ADJUSTED
------------- ------------- (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets......................................... $ 371,467 $ 1,375,282 $ 5,203,828 $ 18,361,317
Total assets........................................... 871,552 3,052,937 6,881,483 20,038,972
Working capital (deficit).............................. (1,959,776) (2,207,681) 905,165 16,944,354
Long-term debt......................................... 367,892 -- -- --
Stockholders' equity (deficit)......................... (1,827,583) (530,026) 2,582,820 18,622,009
</TABLE>
- ------------------------
(1) Before extraordinary gain of $1,653,232 relating to extinguishment of
indebtedness of $0.19, $0.19, and $0.21 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 June 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.
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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, 1998 and 1999, we had a working capital (deficit) of $(1,959,776) and
$(2,207,681), respectively, and stockholders' deficit of $(1,827,583) and
$(530,026) at June 30, 1998 and 1999, respectively. See our financial statements
and the related notes. We generated revenues of $2,800 during the period from
our inception on March 4, 1998 through June 30, 1998, and $143,426 for the year
ended June 30, 1999. For the period from our inception on March 4, 1998 through
June 30, 1998 and the year ended June 30, 1999, we incurred net losses of
$(4,571,936), and $(8,829,091), respectively. We may never achieve
profitability. In addition, during the period from our inception on March 4,
1998 through June 30, 1998 and during the year ended June 30, 1999, we recorded
negative cash flows from operations of $(253,119) and $(4,552,912),
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 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
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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;
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- 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,
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<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 4,746,427 shares, or 30.7%
of the outstanding shares of common stock,
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<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."
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<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 SUMMER 1999 PRIVATE PLACEMENT
During the summer of 1999, we completed a private placement of notes and
common stock for aggregate gross proceeds of approximately $6,608,500. Pursuant
to the Securities Act, the rules and regulations under the Securities Act, and
the interpretations of the Commission, we may be required to offer the investors
in this private placement the opportunity 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. If
we are required to offer the investors this opportunity to rescind these
investments and all of these investors determine to exercise these rescission
rights, 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. See "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
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
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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 SUMMER 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 during summer 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 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."
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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 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
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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 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."
18
<PAGE>
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 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
19
<PAGE>
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."
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.
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<PAGE>
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."
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
21
<PAGE>
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.
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.
22
<PAGE>
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 60.0% 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 securities to purchase
approximately 1.6 million shares of common stock, some of which with 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
15,482,598 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 5,916,135 shares in the aggregate 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
23
<PAGE>
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
- ----------------- -----------------------------------------------------------------------------------------------
<C> <S>
5,481,567 At the date of this prospectus (including the 3,000,000 shares of common stock in this
offering)
1,944,408 Within six months from the date of this prospectus
8,056,623 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.
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<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 Summer
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;
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<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 Summer 1999 private placement. These investors
hold $6,608,500 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 Summer 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.
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<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 October 12, 1999)........................................................ 11 15/16 6 7/8
</TABLE>
The last reported sale price of our common stock on the OTC Bulletin Board
on October 12, 1999 was $7.625 per share. As of September 21, 1999, there were
415 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.
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<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1999:
- our actual short-term debt and capitalization,
- our pre-offering as adjusted short-term debt and capitalization, which
gives effect to (1) the issuance of 50,000 shares of common stock valued
at $400,000 to a customer in July 1999, (2) $3.2 million of the net
proceeds from our Summer 1999 private placement of securities received by
us after June 30, 1999, (3) the issuance of 962,444 shares of common stock
upon the exercise of outstanding warrants on a cashless basis during
October 1999, and (4) the issuance of 1,200,000 shares of common stock
subject to forfeiture 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) the issuance of 50,000 shares of common stock valued at
$400,000 to a customer in July 1999, (2) $3.2 million of the net proceeds
from our Summer 1999 private placement of securities received by us after
June 30, 1999, (3) the issuance of 962,444 shares of common stock upon the
exercise of outstanding warrants on a cashless basis during October 1999,
(4) the issuance of 1,200,000 shares of common stock subject to forfeiture
in exchange for outstanding options under our existing stock option plans,
and (5) 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>
JUNE 30, 1999
----------------------------------------------
PRE-OFFERING POST-OFFERING
ACTUAL AS ADJUSTED AS ADJUSTED
-------------- -------------- --------------
<S> <C> <C> <C>
Short-term debt.................................................. $ 2,367,799 $ 3,083,499 $ 201,799
Long-term debt................................................... -- -- --
Stockholders' equity
Common stock--$0.001 par value, authorized-- 40,000,000 shares;
issued and outstanding--9,912,304 shares, actual; 12,482,598
shares as adjusted; and 15,482,598 shares, as further
adjusted..................................................... 9,913 12,483 15,483
Additional paid-in capital....................................... 12,864,686 25,574,962 45,921,962
Deferred compensation............................................ -- (9,600,000) (9,600,000)
Accumulated other comprehensive loss............................. (3,598) (3,598) (3,598)
Accumulated deficit.............................................. (13,401,027) (13,401,027) (17,711,838)
-------------- -------------- --------------
Total stockholders' equity (deficit)............................. (530,026) (2,582,820) 18,622,009
-------------- -------------- --------------
Total short-term debt and capitalization......................... $ 1,837,773 $ 5,666,319 $ 18,823,808
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
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<PAGE>
DILUTION
As of June 30, 1999, our net tangible net book value (deficit) was
$(2,090,619) or approximately $(0.20) per share of common stock based on
9,912,304 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 June 30, 1999.
After giving effect to
- the issuance of 50,000 shares of common stock to a customer in July 1999
valued at $400,000,
- our receipt after June 30, 1999 of estimated net proceeds of $3.2 million
from our Summer 1999 private placement,
- 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 of 1,200,000 shares of common stock subject to forfeiture in
exchange for outstanding stock options under our existing stock option
plans,
our pre-offering pro-forma net tangible book value at June 30, 1999 would have
been $838,071 or approximately $0.10 per share of common stock.
After giving effect to
- the issuance of 50,000 shares of common stock to a customer in July 1999
valued at $400,000,
- our receipt after June 30, 1999 of net proceeds of $3.2 million from our
Summer 1999 private placement of securities
- 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 of 1,200,000 shares of common stock subject to forfeiture 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 June 30,
1999 would have been $17,263,016 or approximately $1.10 per share of common
stock. This represents an increase in the pro forma as adjusted net tangible
book value of $1.00 per share to existing stockholders and an immediate dilution
in the pro forma as adjusted net tangible book value of $6.90 per share, or 86%,
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 at June 30, 1999.................................................. $ (0.20)
Increase in net tangible book value, giving effect to the July 1999 stock issuance
and Summer 1999 private placement and October stock issuances.............................. .30
---------
Pre-offering pro forma net tangible book value .............................................. .10
Increase in net tangible book value.......................................................... 1.00
---------
Post-offering pro forma net tangible book value after this offering............................ 1.10
---------
Dilution of net tangible book value to new investors........................................... $ 6.90
---------
---------
</TABLE>
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<PAGE>
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........................... 12,482,598 80.6% $ 15,987,445 40.0% $ 1.23
New investors................................... 3,000,000 19.4% 24,000,000 60.0 8.00
------------- ----- ------------- ----- -----------
Total........................................... 15,482,598 100.0% $ 39,987,445 100.0% $ 2.54
------------- ----- ------------- ----- -----------
------------- ----- ------------- ----- -----------
</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, 1998 and 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 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 June
30, 1999 is adjusted to reflect:
- the issuance of 50,000 shares of common stock valued at $400,000 to a
customer in July 1999;
- the receipt of $3.2 million of net the proceeds from our Summer 1999
private placement of securities received by us after June 30, 1999;
- 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 of 1,200,000 shares of common stock subject to forfeiture in
exchange for outstanding stock options under our existing stock option
plans.
The post-offering proforma, as adjusted balance sheet as of June 30, 1999 is
adjusted to reflect:
- the issuance of 50,000 shares of common stock valued at $400,000 to a
customer in July 1999;
- the receipt of $3.2 million of the net proceeds from our Summer 1999
private placement of securities received by us after June 30, 1999;
- the issuance of 962,444 shares of common stock upon the exercise of
outstanding warrants on a cashless basis during October 1999;
- the issuance of 1,200,000 shares of common stock subject to forfeiture 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 YEAR ENDED FROM MARCH 4, 1998
JUNE 30, 1998 JUNE 30, 1999 (INCEPTION)
----------------------- ------------------------ THROUGH JUNE 30,
ACTUAL ACTUAL 1999(2)
---------- ----------- PRO FORMA ------------------
PRO FORMA -----------
----------- (UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 2,800 $ 124,325 $ 143,426 $ 146,867 $ 146,226
Total operating expenses................ 4,555,459 4,690,167 10,047,975 10,225,882 14,603,434
Interest expense........................ 19,277 19,277 523,045 523,045 542,322
Net loss before extraordinary item...... (4,571,936) (4,606,747) (10,482,323 (1) (10,656,789 (1) (15,054,259)(1)
Loss before extraordinary item per
weighted average common share
outstanding (basic and diluted)....... (0.84) (0.81) (1.18 (1) (1.20 (1) (1.87)(1)
Weighted average common shares
outstanding (basic and diluted)....... 5,416,242 5,721,327 8,912,041 8,912,041 8,058,886
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
PRE-OFFERING POST-OFFERING
JUNE 30, 1998 ACTUAL PRO FORMA PRO FORMA
------------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $ 371,467 $1,375,282 $5,203,828 $18,361,317
Total assets.............................................. 871,552 3,052,937 6,881,483 20,038,972
Working capital (deficit)................................. (1,959,776) (2,207,681) 905,165 16,944,354
Long-term debt............................................ 367,892 -- -- --
Stockholders' equity (deficit)............................ (1,827,583) (530,026) 2,582,820 18,622,009
</TABLE>
- ------------------------
(1) Before extraordinary gain of $1,653,232 relating to extinguishment of
indebtedness of $0.19, $0.19, and $0.21 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 June 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, we had a working capital deficiency of $2,207,681 and
stockholders' deficit of $530,026. We generated revenues of $2,800 during the
period from our inception on March 4, 1998 through June 30, 1998, and revenues
of $143,426 during the year ended June 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, and the year
ended June 30, 1999, we incurred negative cash flows from operations of $253,119
and $4,552,912, 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, 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
34
<PAGE>
an indication of future performance. See "Risk Factors--Fluctuations In Our
Operating Results May Affect Our Stock Price."
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.
RECENT FINANCIAL DATA
Although unaudited consolidated financial statements as of and for the three
months ended September 30, 1999 are not yet available, based upon our
preliminary review of our unaudited results of operations for the three months
ended September 30, 1999, we estimate that our revenues for such period were
approximately $200,000. This estimate is preliminary and may differ from our
actual results based upon our review of our final results for this period. In
addition, we may determine to change our revenue recognition method during the
year ending June 30, 2000. See "Risk Factors--If We Change Our Revenue
Recognition Principles, Our Results of Operations For Prior Periods May Change."
RESULTS OF OPERATIONS
We had no meaningful operating results through June 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 $523,045 was incurred during the year ended June 30,
1999, primarily related to amortization of debt issuance costs.
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 June 30, 1999, our cash was $569,472. Net cash used by operating
activities was $4,552,912 for the year ended June 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."
35
<PAGE>
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.
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 $8,829,091 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 $989,500,
compensation expense for contributed capital of $400,000, interest and
amortization of debt issue costs of $478,483, options and warrants issued for
services in the amount of $2,069,390, the provision for doubtful accounts of
$23,876, and the write-off of an $800,000 note receivable. Accounts payable and
accrued liabilities increased by $1,208,227.
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 $3,603,942 of private
placements of common stock, $264,200 from the exercise of warrants, $3,176,000
from the issuance of notes payable and convertible debentures, $100,000 from the
issuance of notes payable to related parties, $201,600 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 $114,192. 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
Summer 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."
36
<PAGE>
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.
RECENT ACTIVITY
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 and
149,375 warrants with a fair value of $586,569. See "Risk Factors--We May Be
Required To Use Funds Which We Would Otherwise Use For Growth To Rescind Our
Summer 1999 Private Placement."
In July 1999, we issued a customer 50,000 shares of common stock valued at
$400,000.
In September 1999, we began offering to holders of certain of our
outstanding warrants the right to exercise these warrants on a cashless basis.
At 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.
In October 1999, we issued 1,200,000 shares of common stock subject to
forfeiture 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. See "Management--Executive Compensation."
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" 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
37
<PAGE>
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.
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<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
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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 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.
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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.
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;
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- 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 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
50
<PAGE>
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.
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
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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.
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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 W. 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
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<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 W. 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 1987 until April 1999, Mr. Gatarz was an attorney at Jones, Day, Reavis &
Pogue, a law firm, and specialized in
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<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.
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<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.
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<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 W. Wendel .................
Senior Vice President 10,833 0 0 0
Craig Gatarz ...................
General Counsel 30,000 7,500 0 40,455(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
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<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 250,000 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 40,455 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
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<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 4.87 816,729
John W. 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 W. 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 Sholes 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.
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<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 W. Wendel(7).......................................... -- -- -- --
Craig Gatarz(8)............................................ 40,455 121,357 192,161 576,446
</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 40,455
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 40,455 shares of common stock with a value
of $258,103 and held unexercisable in-the-money stock options for an
aggregate of 121,357 shares of common stock with a value of $774,258.
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 As determined by the board
General Counsel December 31, 1999 of directors.
$150,000
thereafter
</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 sum severance payment
equal to his or her current annual salary for the remainder of the employment
62
<PAGE>
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 $10.80 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 998,301
shares of common stock were outstanding pursuant to this plan at a weighted
average exercise price of $3.43 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................................ 42,425 42,425 * *
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)....... 4,746,427 1,554,925 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
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$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 Summer 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 summer 1999, we conducted our Summer 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 $10.00 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.
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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, 12,482,598 shares of common stock were outstanding and held of
record by approximately 415 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
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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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 15,482,598 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 5,880,735 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 12,482,598 shares of common stock, 11,785,140
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.
Our directors and officers and a number of our stockholders who hold
together an aggregate of 5,916,135 shares of common stock have entered into
lock-up agreements pursuant to which they have agreed that they will not sell,
directly or indirectly, any shares of common stock held by them without the
prior written consent of the underwriters for a period of six months from the
date of this prospectus.
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."
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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.
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 $ .
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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) -- $ payable at the closing of
this offering
</TABLE>
- ------------------------
(1) Two year consulting agreement is between Netgateway and Cruttenden Roth.
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
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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 Summer 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 Summer 1999 private placement. They received compensation
for their services in the form of $10.00 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.
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).
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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.
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.
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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.
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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 SUBSIDIARIES
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' 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
INFOBAHN TECHNOLOGIES, LLC DBA DIGITAL GENESIS
Independent Auditor's Report for Infobahn Technologies, LLC dba Digital Genesis.... F-26
Balance Sheets as of December 31, 1997 and 1996.................................... F-27
Statements of Operations for the Year Ended December 31, 1997 and the period from
February 2, 1996 (inception) through December 31, 1996........................... F-28
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-29
Statements of Cash Flows for the Year Ended December 31, 1997 and the period from
February 2, 1996 (inception) through December 31, 1996........................... F-30
Notes to Financial Statements...................................................... F-31
Unaudited Balance Sheets as of March 31, 1998 and December 31, 1997................ F-33
Unaudited Statements of Earnings and Members' Equity for the three months ended
March 31, 1998 and 1999.......................................................... F-34
Unaudited Statements of Cash Flows for the three months ended March 31, 1998 and
1997............................................................................. F-35
Notes to Unaudited Financial Statements............................................ F-36
SPARTAN MULTIMEDIA, INC.
Auditor's Report for Spartan Multimedia, Inc....................................... F-38
Balance Sheet as of August 31, 1998................................................ F-39
Statement of Earnings and Retained Earnings for the Year Ended August 31, 1998..... F-40
Statement of Changes in Financial Position for the Year Ended August 31, 1998...... F-41
Notes to Financial Statements...................................................... F-42
Unaudited Balance Sheets as of November 30, 1998 and August 31, 1998............... F-44
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-45
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
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-46
Notes to Unaudited Financial Statements............................................ F-47
VIDEO CALLING CARD, INC.
Auditor's Report for Video Calling Card, Inc....................................... F-49
Balance Sheet as of December 31, 1997 and 1996..................................... F-50
Statement of Operations for the years ended December 31, 1997 and 1996............. F-51
Statement of Cash Flows for the years ended December 31, 1997 and 1996............. F-52
Statement of Stockholders' Equity from Date of Inception (April 13, 1995) to
December 31, 1997................................................................ F-53
Notes to Financial Statements...................................................... F-54
Auditor's Report for Video Calling Card, Inc....................................... F-55
Balance Sheet as of December 31, 1996 and 1995..................................... F-56
Statement of Operations for the year ended December 31, 1996 and the period from
Inception (April 13, 1995) through December 31, 1995............................. F-57
Statement of Cash Flows for the year ended December 31, 1996 and the period from
Inception (April 13, 1995) through December 31, 1995............................. F-58
Statement of Stockholders' Equity from Date of Inception (April 13, 1995) to
December 31, 1996................................................................ F-59
Notes to Financial Statements...................................................... F-60
Unaudited Balance Sheet as of March 31, 1998 and December 31, 1997................. F-61
Unaudited Statement of Operations for the three months ended March 31, 1998 and
1997............................................................................. F-63
Unaudited Statement of Cash Flows for the three months ended March 31, 1998 and
1997............................................................................. F-64
Unaudited Statement of Stockholders' Equity from Date of Inception (April 13, 1995)
to March 31, 1998................................................................ F-65
Notes to Unaudited Financial Statements............................................ F-66
</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 -- 74,718 1,2 87,195
Selling, general and
administrative..................... 721,210 62,030 19,360 -- 802,600
--
------------- ---------- ----------- ----------- -----------
Total operating expenses......... 4,555,459 62,258 19,360 74,718 4,711,795
--
------------- ---------- ----------- ----------- -----------
Income (loss) from operations.... (4,552,659) 53,393 (13,486) (74,718) (4,587,470)
Interest expense....................... 19,277 -- -- -- 19,277
--
------------- ---------- ----------- ----------- -----------
Net income (loss)................ $ (4,571,936) 53,393 (13,486) (74,718) (4,606,747)
--
--
------------- ---------- ----------- ----------- -----------
------------- ---------- ----------- ----------- -----------
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................... 217,282 -- 101,912 1 319,194
Selling, general and administrative............. 9,830,693 75,995 9,906,688
------------- ----------- ----------- -------------
Total operating expenses.................. 10,047,975 75,995 101,912 10,225,882
------------- ----------- ----------- -------------
Loss from operations...................... (9,904,549) (72,554) (101,912) (10,079,015)
Loss on sale of equity securities................. 54,729 -- -- 54,729
Interest expense.................................. 523,045 -- -- 523,045
------------- ----------- ----------- -------------
Loss before extraordinary item............ (10,482,323) (72,554) (101,912) (10,656,789)
Extraordinary gain on extinguishment
of debt......................................... 1,653,232 -- -- 1,653,232
------------- ----------- ----------- -------------
Net loss.................................. $ (8,829,091) (72,554) (101,912) (9,003,557)
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Basic and diluted extraordinary gain
per share....................................... .19 -- -- .19
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Basic and diluted loss per share.................. $ (.99) -- -- (1.01)
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
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 $1,021,430,
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 $1,019,120, which is being amortized on a straight line
basis over a five year useful life. Additional amortization of $67,941 for
the period from March 4, 1998 (inception) to June 30, 1998 and $101,912 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.................................................................. 332,244 --
Prepaid offering costs............................................................ 325,887 --
Other current assets.............................................................. 73,481 45,565
-------------- -----------
Total current assets............................................................ 1,375,282 371,467
Property and equipment, net (note 4)................................................ 429,453 143,384
Intangible assets, net (note 5)..................................................... 1,228,349 351,804
Other assets........................................................................ 19,853 4,897
-------------- -----------
$ 3,052,937 871,552
-------------- -----------
-------------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current portion of notes payable (note 8)......................................... $ 2,166,000 --
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............................................................... 531,849 30,000
Deferred revenue.................................................................. 81,550 --
Current portion of notes payable to related parties (note 8)...................... 1,799 2,052,159
-------------- -----------
Total current liabilities....................................................... 3,582,963 2,331,243
Notes payable to related parties, less current portion (note 8)..................... -- 367,892
-------------- -----------
Total liabilities............................................................... 3,582,963 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........................................................ 12,864,686 2,849,163
Deferred compensation............................................................. -- (112,320)
Accumulated other comprehensive loss.............................................. (3,598) --
Deficit accumulated during development stage...................................... (13,401,027) (4,571,936)
-------------- -----------
Total shareholders' deficit..................................................... (530,026) (1,827,583)
Commitments and subsequent events (notes 12 and 13)
-------------- -----------
Total liabilities and shareholders' deficit..................................... $ 3,052,937 871,552
-------------- -----------
-------------- -----------
</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.................................... 217,282 12,249 229,531
Selling, general and administrative.............................. 9,830,693 721,210 10,551,903
-------------- ------------- -------------
Total operating expenses....................................... 10,047,975 4,555,459 14,603,434
-------------- ------------- -------------
Loss from operations........................................... (9,904,549) (4,552,659) (14,457,208)
Loss on sale of equity securities.................................. 54,729 -- 54,729
Interest expense................................................... 523,045 19,277 542,322
-------------- ------------- -------------
Loss before extraordinary item................................. (10,482,323) (4,571,936) (15,054,259)
Extraordinary gain on extinguishment of debt....................... 1,653,232 -- 1,653,232
-------------- ------------- -------------
Net loss....................................................... $ (8,829,091) (4,571,936) (13,401,027)
-------------- ------------- -------------
-------------- ------------- -------------
Basic and diluted extraordinary gain per share..................... $ 0.19 -- 0.21
-------------- ------------- -------------
-------------- ------------- -------------
Basic and diluted loss per share................................... $ (0.99) (0.84) (1.66)
-------------- ------------- -------------
-------------- ------------- -------------
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--3.00 -- -- 1,779,950 --
Stock compensation paid by shareholders................ 11/98 2.00 -- -- 400,000 --
Amortization of deferred compensation.................. -- -- -- 101,760
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 2.50--3.00 -- -- 1,021,429 --
Options issued for legal services...................... 7/98--3/99 2.50 -- -- 289,440 --
Warrants granted for debt issue costs.................. 2/99--6/99 2.50--3.00 -- -- 497,525 --
Shares issued for debenture conversion................. 3/99--5/99 2.50 320,000 320 799,680 --
Shares issued for services............................. 10/98--6/99 2.00--3.00 366,500 366 989,134 --
Shares issued for debt issue costs..................... 3/99 2.50 30,000 30 77,470 --
Sale of common stock for cash, net..................... 3/99--6/99 3.00 614,334 615 1,703,727 --
Cashless exercise of warrants.......................... 4/99 2,570 3 (3) --
Shares issued for technology........................... 5/99 3.00 35,000 35 104,965 --
Comprehensive loss:
Net loss............................................. -- -- -- --
Foreign currency translation adjustment.............. -- -- -- --
Total comprehensive loss...............................
--------- --------- ------------- -------------
Balance at June 30, 1999............................... 9,912,304 $ 9,913 12,864,686 --
--------- --------- ------------- -------------
--------- --------- ------------- -------------
<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.......................... -- -- 1,779,950
Stock compensation paid by shareholders................ -- -- 400,000
Amortization of deferred compensation.................. -- -- 101,760
Forfeited stock........................................ -- -- --
Capital contributed upon extinguishment of debt........ -- -- 200,000
Subsidiary convertible common stock issued in business
acquisition.......................................... -- -- 1,021,429
Options issued for legal services...................... -- -- 289,440
Warrants granted for debt issue costs.................. -- -- 497,525
Shares issued for debenture conversion................. -- -- 800,000
Shares issued for services............................. -- -- 989,500
Shares issued for debt issue costs..................... -- -- 77,500
Sale of common stock for cash, net..................... -- -- 1,704,342
Cashless exercise of warrants.......................... -- -- --
Shares issued for technology........................... -- -- 105,000
Comprehensive loss:
Net loss............................................. (8,829,091) (8,829,091) -- (8,829,091)
Foreign currency translation adjustment.............. (3,598) -- (3,598) (3,598)
--------------
Total comprehensive loss............................... (8,832,689)
--------------
--------------
----------- -------------- -------------
Balance at June 30, 1999............................... (13,401,027) (3,598) (530,026)
----------- -------------- -------------
----------- -------------- -------------
</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......................................................... $(8,829,091) (4,571,936) (13,401,027)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................. 217,282 12,249 229,531
Common stock issued for services............................... 989,500 371,680 1,361,180
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.......................... 101,760 -- 101,760
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................... 35,488 19,277 54,765
Interest expense on warrants issued as debt issue costs........ 332,425 -- 332,425
Amortization of debt issue costs............................... 146,058 -- 146,058
Options and warrants issued for services....................... 2,069,390 -- 2,069,390
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........................ 1,208,227 116,033 1,324,260
------------- ------------- ------------------
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......................... 3,603,942 649,000 4,252,942
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....................................... 3,176,000 -- 3,176,000
Cash paid for debt issue costs................................. (201,600) -- (201,600)
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............ 1,021,429 -- 1,021,429
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.................. 105,000 -- 105,000
Warrants issued for debt issue costs........................... 497,525 -- 497,525
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
March 31, 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 $464,286. 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 $1,021,429. 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.......................................................... $ 176,649
---------
---------
Net loss......................................................... (8,791,611)
---------
---------
Loss per share................................................... (.99)
---------
---------
</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.
F-16
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Q) RECLASSIFICATIONS
Certain amounts have been reclassified to conform with current year
presentation.
(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......................................... $ 513,021 152,244
Less accumulated depreciation.......................................... (83,568) (8,860)
---------- ---------
429,453 143,384
---------- ---------
---------- ---------
</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.................................................. $ 1,139,119 120,000
Goodwill............................................................. 235,193 235,193
------------ ---------
1,374,312 355,193
Less accumulated amortization........................................ (145,963) (3,389)
------------ ---------
$ 1,228,349 351,804
------------ ---------
------------ ---------
</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.
F-17
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) LICENSE AGREEMENTS (CONTINUED)
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 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 January 1999 and February 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 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
F-18
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE (CONTINUED)
to be $114,192 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 transactions. Accordingly, $2,016,000 was recorded as notes
payable, $725,342 as equity, net of $138,658 of stock issuance costs, and
$323,534 as debt issuance costs.
In June 1999, the Company issued a 12% senior note payable of $150,000 and
15,000 shares of common stock valued at $45,000 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 $2,973 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, $2,973 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...................................... $ 2,016,000 --
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
------------ -----------
2,017,799 2,420,051
Less current portion............................................................. 2,017,799 (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 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.
F-19
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) CONVERTIBLE DEBENTURES AND NOTES PAYABLE (CONTINUED)
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) STOCKHOLDERS' EQUITY
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 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.
F-20
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCKHOLDERS' EQUITY (CONTINUED)
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 $2,277,475 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 $1,779,950, debt issuance costs
of $165,100 and interest expense of $332,425 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 $989,500 as payment of consulting and legal services.
In May 1999, the Company issued 35,000 shares of common stock valued at
$105,000 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 $77,500 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 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.
F-21
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and recorded compensation for the fair
value of the options aggregating $65,600. 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, additional
compensation of $223,840 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 ranging from $2.17 to $5.34 per share. 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 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.......... $(8,829,091)
Net loss--pro forma............ (10,166,978)
-----------
-----------
</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
F-22
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) STOCK OPTIONS (CONTINUED)
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>
(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
F-23
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
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.................................. $ (3,001,891) (1,554,458)
Decrease (increase) in income taxes resulting from: (522,047)
State and local income tax benefit, net of federal effect........ (516,567) (278,196)
Change in the valuation allowance for deferred tax assets........ 3,491,687 1,859,974
Other............................................................ 34,650 (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............................... $ 3,497,161 1,669,316
Stock compensation expense..................................... 1,287,652 179,872
Intangible assets, principally due to differences in
amortization................................................. 16,417 10,290
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.............................. 5,359,070 1,859,974
Less valuation allowance..................................... (5,351,661) (1,859,974)
Deferred tax liability:
Property and equipment, principally due to differences in
depreciation................................................. (7,409) --
------------- -----------
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 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 $9,869,000
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.
F-24
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) INCOME TAXES (CONTINUED)
As of June 30, 1999, the Company had approximately $3,947,161 of net
operating loss carryforwards available for Federal and state income tax
purposes, respectively, which expire 2014. 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.
(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.
F-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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:
__/s/ David Rosenthal__, Director
David Rosenthal
__/s/ Jordi MacDonald__, Director
Jordi MacDonald
F-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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-59
<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-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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-66
<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. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE SALE OF THE
SHARES OF COMMON STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AFTER THE DATE OF 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
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<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 1, 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.
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<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 5, 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 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.
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.
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.
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 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
II-7
<PAGE>
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 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 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.
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 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.
- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1** Certificate of Incorporation
3.2 Bylaws
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
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
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
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 Agreement, dated February 25, 1999, between Netgateway, Inc. and Xoom.com
10.24 Electronic Commerce Services Agreement, dated as of March 24, 1999, between Netgateway, Inc. and CB
Richard Ellis
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.25 Reseller and Mall Agreement, dated as of May 20, 1999, among Netgateway, Inc., StoresOnline.com, Inc.
and WirelessOne, Inc.
10.26 Electronic Commerce Services Agreement, dated as of June 1999, between Netgateway, Inc. and Reliant
Innovations, Inc.
10.27 Cable Reseller and Mall Agreement, dated as of July 26, 1999, among StoresOnline.com, Inc.,
Netgateway, Inc. and MediaOne of Colorado, Inc.
10.28 Stock Purchase Agreement, dated as of July 16, 1999, between Netgateway, Inc. and MediaOne of
Colorado, Inc.
10.29 Distributor Mall/Storefront Agreement, dated as of August 25, 1999, between Netgateway, Inc. and
BuySellBid.com, Inc.
10.30 Joint Marketing and Promotion Agreement, dated August 25, 1999, between Netgateway, Inc. and
BuySellBid.com, Inc.
10.31 Cable Reseller and Mall Agreement, dated as of August 30, 1999 among Netgateway, Inc., StoresOnline
and B2BStores.com, Inc.
10.32 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 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
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
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
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
23.1 Consent of KPMG LLP
23.2 Consent of Wright Ford Young & Company
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>
- ------------------------
* To be filed by amendment.
** Previously filed.
(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. Redacted material is indicated by the following sign where such
redacted text would have appeared in the relevant exhibit to this Form S-1:
"[**REDACTED**]"
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
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<PAGE>
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) 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.
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<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 October 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 October 12, 1999
Keith D. Freadhoff Directors
Chief Executive Officer
* and Chief Information
- ------------------------------ Officer (Principal October 12, 1999
Roy W. Camblin III Executive Officer)
Chief Financial Officer,
* Chief Operating Officer,
- ------------------------------ and Director (Principal October 12, 1999
David Bassett-Parkins Financial and Accounting
Officer)
*
- ------------------------------ President and Director October 12, 1999
Donald M. Corliss, Jr.
*
- ------------------------------ Director October 12, 1999
Scott Beebe
*
- ------------------------------ Director October 12, 1999
William Brock
*
- ------------------------------ Director October 12, 1999
Ronald Spire
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ KEITH D. FREADHOFF
-------------------------
Keith D. Freadhoff
ATTORNEY-IN-FACT
</TABLE>
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<PAGE>
BY-LAWS
OF
NETGATEWAY, INC.
<PAGE>
NETGATEWAY, INC.
A DELAWARE CORPORATION
BY-LAWS
-------------------------------------
ARTICLE I
STOCKHOLDERS
SECTION 1.1 ANNUAL MEETING.
An annual meeting of stockholders for the purpose of electing directors and
of transacting such other business as may come before it in accordance with
Section 1.8 of these By-Laws shall be held each year at such date, time, and
place, either within or without the State of Delaware, as may be specified by
the Board of Directors.
SECTION 1.2 SPECIAL MEETINGS.
A special meeting of stockholders for any purpose other than the election
of directors may be called at any time upon call of the Chairman of the Board of
Directors, if any, the President, any Vice President, or a majority of the Board
of Directors, or by the holders of record of at least a majority of the
outstanding voting securities of the Corporation at such time and place, either
within or without the State of Delaware, as may be stated in the notice. At any
special meeting of stockholders, no business transacted and no corporate action
shall be taken other than as stated in the notice of the meeting.
SECTION 1.3 NOTICE OF MEETINGS.
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and the purpose or purposes for which the meeting is called shall be
given by the Chairman of the Board of Directors, if any, the President, any Vice
President, the Secretary, or any Assistant Secretary to each stockholder
entitled to vote thereat at least ten days, but not more than sixty days, before
the date of the meeting, unless a different period is prescribed by law.
-2-
<PAGE>
SECTION 1.4 QUORUM.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws, at any meeting of stockholders, the holders of a majority of
the outstanding shares of each class of stock entitled to vote at the meeting
shall be present or represented by proxy in order to constitute a quorum for the
transaction of any business. In the absence of a quorum, a majority in interest
of the stockholders present or the chairman of the meeting, as determined in
accordance with Section 1.6 of these By-Laws, may adjourn the meeting from time
to time in the manner provided in Section 1.5 of these By-Laws until a quorum
shall attend.
SECTION 1.5 ADJOURNMENT.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 1.6 ORGANIZATION.
(a) The Chairman of the Board of Directors, or in his or her absence the
President, or in their absence any Vice President, shall call to order meetings
of stockholders and shall act as chairman of such meetings. The Board of
Directors or, if the Board of Directors fails to act, the stockholders, may
appoint any stockholder, director, or officer of the Corporation to act as
chairman of any meeting in the absence of the Chairman of the Board, the
President, and all Vice Presidents.
(b) The Secretary of the Corporation shall act as secretary of all
meetings of stockholders, but, in the absence of the Secretary, the chairman of
the meeting may appoint any other person to act as secretary of the meeting.
SECTION 1.7 VOTING.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-Laws and except for the election of directors, at any meeting duly
called and held at which a quorum is present, a majority of the votes cast at
such meeting upon a given question by the holders of outstanding shares of stock
of all classes of stock of the Corporation entitled to vote thereon who are
present in person or by proxy shall decide such question. At any meeting duly
called and held for the election of directors at which a quorum is present,
directors shall be elected by a plurality of the votes cast by the holders
(acting as such) of shares of stock of the Corporation entitled to elect such
directors.
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SECTION 1.8 INTRODUCTION OF BUSINESS AT MEETINGS OF STOCKHOLDERS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 1.8, who shall be entitled to vote at such annual
meeting and who complies with the notice procedures set forth in this Section
1.8. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to, and received at, the principal executive offices of the
Corporation 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 10th day following the day
on which such notice of the date of the annual meeting was mailed or such 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: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting; (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-Laws to the contrary, no business shall be conducted at the
stockholder meeting, except in accordance with the procedures set forth in this
Section 1.8. The chairman of the meeting, as determined in accordance with
Section 1.6 of 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 such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Section 1.8, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder with respect to the
matters set forth in this Section 1.8.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.1 NUMBER AND TERM OF OFFICE.
The business, property, and affairs of the Corporation shall be managed by,
or under the direction of, a Board of not less than one nor more than nine
directors; provided, however, that the Board, by resolution adopted by vote of a
majority of the then authorized number of directors, may increase or decrease
the number of directors. The directors shall be elected by the holders of
shares
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entitled to vote thereon at the annual meeting of stockholders, and each shall
serve (subject to the provisions of Article IV) until the next succeeding annual
meeting of stockholders and until his or her respective successor has been
elected and qualified.
SECTION 2.2 CHAIRMAN OF THE BOARD OF DIRECTORS.
The directors may elect one of their members to be Chairman of the Board of
Directors. The Chairman shall be subject to the control of, and may be removed
by, the Board of Directors. He or she shall perform such duties as may from
time to time be assigned to him or her by the Board of Directors.
SECTION 2.3 MEETINGS.
(a) Regular meetings of the Board of Directors may be held without notice
at such time and place as shall from time to time be determined by the Board.
(b) Special meetings of the Board of Directors shall be held at such time
and place as shall be designated in the notice of the meeting whenever called by
the Chairman of the Board of Directors, if any, the President, or a majority of
the directors then in office.
SECTION 2.4 NOTICE OF SPECIAL MEETINGS.
The Secretary, or, in his or her absence, any other officer of the
Corporation, shall give each director notice of the time and place of holding of
special meetings of the Board of Directors by mail at least ten days before the
meeting, or by telecopy, telegram, cable, radiogram, or personal service at
least one day before the meeting. Unless otherwise stated in the notice
thereof, any and all business may be transacted at any meeting without
specification of such business in the notice.
SECTION 2.5 QUORUM AND ORGANIZATION OF MEETINGS.
A majority of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place, and
the meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or in the Certificate of Incorporation or these
By-Laws, a majority of the directors present at any meeting at which a quorum is
present may decide any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board of Directors, if any, or, in his or
her absence, by the President, or, in the absence of both the Chairman of the
Board of Directors and the President, by such other person or as the directors
may select. The Secretary of the Corporation shall act as secretary of the
meeting, but in his or her absence the chairman of the meeting may appoint any
person to act as secretary of the meeting.
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SECTION 2.6 COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the
entire Board of Directors, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the event of the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in the resolution of the Board of Directors, shall have,
and may exercise, all the powers and authority of the Board of Directors in the
management of the business, property, and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have power or authority in reference to
amending the Certificate of Incorporation of the Corporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
pursuant to authority expressly granted to the Board of Directors by the
Corporation's Certificate of Incorporation, fix any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation, or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law of the State of Delaware, recommending to the stockholders the
sale, lease, or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or amending these By-Laws; and,
unless the resolution expressly so provided, no such committee shall have the
power or authority to declare a dividend, to authorize the issuance of stock, or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of the State of Delaware. Each committee which may be
established by the Board of Directors pursuant to these By-Laws may fix its own
rules and procedures. Notice of meetings of committees, other than of regular
meetings provided for by the rules of such committee, shall be given to all
committee members. All action taken by committees shall be recorded in minutes
of the meetings.
SECTION 2.7 ACTION WITHOUT MEETING.
Nothing contained in these By-Laws shall be deemed to restrict the power of
members of the Board of Directors or any committee designated by the Board of
Directors to take any action required or permitted to be taken by them without a
meeting.
SECTION 2.8 TELEPHONE MEETINGS.
Nothing contained in these By-Laws shall be deemed to restrict the power of
members of the Board of Directors or any committee designated by the Board of
Directors, to participate in a
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meeting of the Board of Directors, or any committee thereof, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
SECTION 2.9 NOMINATION OF DIRECTORS.
Only persons who are nominated in accordance with the procedure set forth
in these By-Laws shall be eligible to service as directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the Corporation who is a stockholder of record at
the time of giving of notice provided for in this Section 2.9, who shall be
entitled to vote for the election of directors at the meeting and who complies
with the notice provision of this Section 2.9. Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered or mailed to, and received
at, the principal executive offices of the Corporation not less than 60 days,
nor more than 90 days, prior to the meeting, regardless of postponements,
deferrals, or adjournments of that meeting to a later date; provided, however,
that in the event that less than 70 days' notice or public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
10th day following the day on which such notice of the date of the meeting or
such public disclosure was made. Such stockholder's notice shall contain the
written consent of each proposed nominee to serve as a director if so elected
and shall set forth the following: (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director and as to each
person, acting alone or in conjunction with one or more other persons as a
partnership, limited partnership, syndicate or other group, who participates or
is expected to participate in making such nomination or in organizing, directing
or financing such nomination or solicitation of proxies to vote for the nominee
(A) the name, age, residence address, and business address of each proposed
nominee and of each such person; (B) the principal occupation or employment, and
the name, type of business, and address of the corporation or other organization
in which such employment is carried on, of each proposed nominee and of each
such person; (C) the amount of stock of the Corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and (D) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person regarding
future employment or any future transaction to which the Corporation will or may
be a party; and (ii) as to the stockholder giving the notice (A) the name and
address, as they appear on the Corporation's books, of such stockholder; and (B)
the class and number of shares of the Corporation which are beneficially owned
by such stockholder. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice or nomination which pertains to the nominee. Subject to
the rights of holders of preferred stock, if any, no person shall be eligible to
serve as a director of the Corporation unless nominated in accordance with the
procedures set forth in these By-Laws. The chairman of the meeting, determined
in accordance with Section 1.6 of these By-Laws, shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the procedures
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prescribed by these By-Laws, and if he should so determine, he shall so declare
to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 2.9, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the matters set forth in this
Section.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a President, one or more
Vice Presidents, a Treasurer, and a Secretary, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint such other
officers (including a Controller and one or more Assistant Treasurers and
Assistant Secretaries) as it may deem necessary or desirable. Each officer
shall hold office for such term as may be prescribed by the Board of Directors
from time to time. Any person may hold at one time two or more offices.
SECTION 3.2 POWERS AND DUTIES.
The Chairman of the Board, if any, or, in his or her absence, the
President, shall preside at all meetings of the stockholders and of the Board of
Directors. Either the President or the Chairman of the Board of Directors, as
determined by the Board of Directors, shall be the chief executive officer of
the Corporation. In the absence of the President, a Vice President appointed by
the President or, if the President fails to make such appointment, by the Board
of Directors, shall perform all the duties of the President. The officers and
agents of the Corporation shall each have such powers and authority and shall
perform such duties in the management of the business, property, and affairs of
the Corporation as generally pertain to their respective offices, as well as
such powers and authorities and such duties as from time to time may be
prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
SECTION 4.1 RESIGNATIONS.
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
President, or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein or, if the time be
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not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
SECTION 4.2 REMOVALS.
The Board of Directors, by a vote of not less than a majority of the entire
Board, at any meeting thereof, or by written consent, at any time, may, to the
extent permitted by law, remove with cause from office or terminate the
employment of any officer or member of any committee and may, with or without
cause, disband any committee.
Any Director or the Entire Board of Directors May be Removed, With Cause,
by the Holders of a Majority of the Shares Entitled At the Time to Vote At an
Election of Directors.
SECTION 4.3 VACANCIES.
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from increase in the number of directors, may be filled
at any time by a majority of the directors then in office (even though less than
a quorum remains), and, subject to the provisions of this Article IV, the
person so chosen shall hold office until his or her successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, he shall (subject to the provisions of this Article IV) hold office
for the unexpired term of his or her predecessor.
ARTICLE V
CAPITAL STOCK
SECTION 5.1 STOCK CERTIFICATES.
The certificates representing shares of the capital stock of the
Corporation shall be in such form as shall be prescribed by law and approved,
from time to time, by the Board of Directors.
SECTION 5.2 TRANSFER OF SHARES.
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his or her duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate representing such stock properly endorsed.
SECTION 5.3 FIXING RECORD DATE.
(a) In order that the Corporation may determine the stockholders entitled
to notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or entitled to receive
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payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any other lawful action other than
stockholder action by written consent, the Board of Directors may fix a record
date which shall not precede the date such record date is fixed and shall not be
more than 60 days, nor less than 10 days, prior to the date of such meeting. If
no record date is fixed, the record date for determining stockholders entitled
to notice of, or to vote at, a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjourned
meeting.
(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. Any stockholder of record seeking to have the stockholders authorize
or take corporate action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record date. The Board of
Directors shall promptly, but in all events within 10 days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within 10 days of the
date on which such a request is received and no prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation by
delivery to its registered office in the State of Delaware, the principal place
of business, or an officer of agent of the Corporation having custody of the
book in which proceedings of stockholders meetings are recorded, to the
attention of the Secretary of the Corporation. Delivery shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by applicable law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the closed of business on the date on which the Board of Directors adopts the
resolution taking such prior action.
(c) The fact and date of the execution by any stockholder of record of the
Corporation of any written consent shall be provided by the certificate under
the official seal of a notary public or of any other officer who, by the laws of
public or of any other officer who, by the laws of the jurisdiction in which
such written consent is executed, has power to take acknowledgments or proofs of
deeds to be recorded within such jurisdiction, that the person who signed such
written consent did acknowledge before such notary public or other officer the
execution thereof and, in the event a record date has theretofore been
established to determine the stockholders entitled to give such consents, the
fact that he was on the record date the record holder of the applicable shares.
No such written consent shall be valid without being so proved.
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(d) In the event of the delivery to the Corporation of a written consent
or consents purporting to authorize or take corporate action and/or related
revocations (each such written consent and any revocation thereof is referred to
in this section 5.3(d) as a "Consent"), the Secretary of the Corporation shall
provide for the safekeeping of such Consents and shall, as soon as practicable
thereafter, conduct such reasonable investigation as he deems necessary or
appropriate for the purpose ascertaining the validity of such Consents and all
matters incident thereto, including, without limitation, whether the holders of
shares having the requisite voting power to authorize or take the action
specified in the Consents have given consent; provided, however, that if the
removal or election of one or more members of the Board of Directors, the
Secretary of the Corporation shall designate an independent, qualified inspector
with respect to Such Consents and such inspector shall discharge the functions
of the Secretary of the Corporation under this Section 5.3(d). If, after such
investigation, the Secretary or the inspector, as the case may be, shall
determine that any action purportedly taken by such Consents has been validly
taken, that fact shall be certified on the records of the Corporation kept for
the purpose of recording the proceedings of meetings of the stockholders, and
the Consents shall be filed with such records. In conducting the investigation
required by this Section 5.3(d) , the Secretary or the inspector may, at the
expense of the Corporation, retain to assist them special legal counsel and any
other necessary or appropriate professional advisers, and such other personnel
as they may deem necessary or appropriate.
SECTION 5.4 LOST CERTIFICATES.
The Board of Directors or any transfer agent of the Corporation may direct
a new certificate or certificates representing stock of the Corporation to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his or
her legal representative, to give the Corporation a bond in such sum as the
Board of Directors (or any transfer agent so authorized) shall direct to
indemnify the Corporation against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed or the issuance of such new certificates, and such requirement may
be general or confined to specific instances.
SECTION 5.5 REGULATIONS.
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
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MISCELLANEOUS
SECTION 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware."
SECTION 6.2 FISCAL YEAR.
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
SECTION 6.3 NOTICES AND WAIVERS THEREOF.
(a) Whenever any notice whatever is required by law, the Certificate of
Incorporation, or these By-Laws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may be given
personally, or by mail, or, in the case of directors or officers, by telecopy,
telegram, cable, or radiogram, addressed to such address as appears on the books
of the Corporation. Any notice given by telecopy, telegram, cable, or radiogram
shall be deemed to have been given when it shall have been delivered for
transmission and any notice given by mail shall be deemed to have been given
when it shall have been deposited in the United States mail with postage thereon
prepaid.
(b) Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-Laws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
SECTION 6.4 STOCK OF OTHER CORPORATIONS OR OTHER INTERESTS.
Unless otherwise ordered by the Board of Directors, the Chairman of the
Board of Directors, the President, the Secretary, and such attorneys or agents
of the Corporation as may be, from time to time, authorized by the Board of
Directors, the Chairman of the Board of Directors, or the President, shall have
full power and authority on behalf of this Corporation to attend and to act and
vote in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The Chairman of the Board, the President, the Secretary,
or such attorneys or agents, may also execute and deliver on behalf of this
Corporation powers of attorney, proxies, consents, waivers, and other
instruments relating to the shares or securities owned or held by this
Corporation.
ARTICLE VII
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AMENDMENTS
The holders of shares entitled at the time to vote for the election of
directors shall have the power to adopt, amend, or repeal the By-Laws of the
Corporation by vote of not less than a majority of such shares, and, except as
otherwise provided by law, the Board of Directors shall have power equal in all
respects to that of the stockholders to adopt, amend, or repeal the By-Laws by
vote of not less than a majority of the entire Board. However, any By-Law
adopted by the Board of Directors may be amended or repealed by vote of the
holders of a majority of the shares entitled at the time to vote for the
election of directors.
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR
ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR
(2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS NOTE, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT THIS NOTE
MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR TRANSFERRED IN THE MANNER
CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
NETGATEWAY, INC.
SERIES A 12% SENIOR NOTE
$ APRIL __, 1999
NEW YORK, NEW YORK
NETGATEWAY, INC., a Nevada corporation (the "Company"), for value
received, hereby promises to pay to _____________________________________,
with an address at
____________________________________________________________, or registered
assigns (the "Holder"), the principal amount of _______________ United States
Dollars ($--) on the Maturity Date (as defined below), and to pay interest on
the unpaid principal balance hereof at the rate (calculated on the basis of a
360-day year consisting of twelve 30-day months) of 12% per annum from the
date hereof until the Maturity Date. Accrued interest on the unpaid principal
balance hereof shall be payable on the Maturity Date or upon the earlier
repayment of this Note. In no event shall any interest to be paid hereunder
exceed the maximum rate permitted by law. In any such event, this Note shall
automatically be deemed amended to permit interest charges at an amount equal
to, but no greater than, the maximum rate permitted by law.
1. OFFERING; SUBSCRIPTION AGREEMENT.
This Note was issued by the Company in an offering (the "Offering") of
units (the "Units"), each Unit consisting of (i) a Series A 12% Senior Note in
the principal amount of $50,000 (collectively, the "Notes") and (ii) 5,000
shares of common stock, par value $.001 per share (the "Common Stock"), of the
Company. In connection with the Offering, each purchaser of Units (collectively,
the "Holders") has executed and delivered a Subscription Agreement (each a
"Subscription Agreement" and collectively, the "Subscription Agreements") to the
Company.
2. PAYMENTS.
(a) Principal of, and any accrued and unpaid interest on, this Note shall
be due and payable in full on the Maturity Date. The "Maturity Date" shall be
the date which is the earliest of (i) April 30, 2000, (ii) the first business
day following the date of closing of the contemplated
<PAGE>
initial public offering (the "Contemplated IPO") of shares of Common Stock to be
managed by Cruttenden Roth Incorporated, and (iii) the first business day
following the date of closing of any financing (except conventional commercial
credit facilities) by the Company the gross proceeds of which equals or exceeds
$5 million.
(b) Interest on this Note shall accrue from the date of issuance hereof to,
but excluding, the Maturity Date, and shall be payable in arrears on the
Maturity Date.
(c) If the Maturity Date falls on a day that is not a Business Day (as
defined below), the payment due on the Maturity Date will be made on the next
succeeding Business Day with the same force and effect as if made on the
Interest Payment Date or the Maturity Date, as the case may be. "Business Day"
means any day which is not a Saturday or Sunday and is not a day on which
banking institutions are generally authorized or obligated to close in the City
of New York, New York.
(d) The Company may, at its option, prepay all or any part of the principal
of this Note, without payment of any premium or penalty. All payments on this
Note shall be applied first to accrued interest hereon and the balance to the
payment of principal hereof.
(e) Payments of principal and interest on this Note shall be made by check
sent to the Holder's address set forth above or to such other address as the
Holder may designate for such purpose from time to time by written notice to the
Company, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts.
(f) The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off,
counterclaim, rescission, recoupment, or adjustment whatsoever. The Company
hereby expressly waives demand and presentment for payment, notice of
non-payment, notice of dishonor, protest, notice of protest, bringing of suit,
and diligence in taking any action to collect any amount called for hereunder,
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereon, regardless of and without any notice, diligence, act, or
omission with respect to the collection of any amount called for hereunder.
3. RANKING OF NOTE.
The Company, for itself, its successors, and its assigns, covenants and
agrees that the payment of the principal of, and interest on, this Note is
unsecured in all respects, but shall constitute senior unsecured indebtedness of
the Company and shall rank pari passu with all senior unsecured indebtedness of
the Company.
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<PAGE>
4. COVENANTS.
The Company covenants and agrees with the Holder that, so long as any
amount remains unpaid on the Notes, unless the consent of the majority of all of
the Holders is obtained, the Company:
(a) Shall not pay any dividend or make any distribution on, or purchase,
redeem, or retire, any shares of its capital stock or any warrants, options, or
other rights to reacquire any such shares, except that the Company may pay
dividends payable solely in shares of its capital stock.
(b) Shall deliver to each Holder:
(i) as soon as available, and in any event within 45 days after
the end of each of the first three quarterly fiscal periods of each fiscal year
of the Company, consolidated statements of income, retained earnings, and cash
flow of the Company, for such period and for the period from the beginning of
the respective fiscal year to the end of such period, and the related
consolidated balance sheet of the Company and its subsidiaries as at the end of
such period setting forth in the case of each such statement in comparative form
the corresponding figures for the corresponding period in the preceding fiscal
year, accompanied by a certificate of the chief financial officer of the
Company, which certificate shall state that (A) such financial statements fairly
present in all material respects the financial position and results of
operations of the Company and its subsidiaries, all in accordance with generally
accepted accounting principles consistently applied, and (B) no Default (as
hereinafter defined) has occurred and is continuing or, if any Default has
occurred and is continuing, a description thereof in reasonable detail and of
the action the Company has taken or proposes to take with respect thereto;
(ii) as soon as available and in any event within 90 days after the
end of each fiscal year of the Company, consolidated statements of income,
retained earnings, and cash flow of the Company for such fiscal year, and the
related consolidated balance sheet of the Company and its subsidiaries as at the
end of such fiscal year, setting forth in the case of each such statement in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by (A) an opinion thereon of independent certified public
accountants to the Company, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position and
results of operations of the Company and its subsidiaries in conformity with
generally accepted accounting principles consistently applied, and (B) a
certificate of the chief financial officer of the Company stating that no
Default has occurred and is continuing or, if any Default has occurred and is
continuing, a description thereof in reasonable detail and of the action the
Company has taken or proposes to take with respect thereto;
(iii) promptly after the Company shall obtain knowledge of such,
written notice of all legal or arbitral proceedings, and of all proceedings by
or before any governmental or regulatory authority or agency, and each material
development in respect of such legal or other proceedings, affecting the Company
and its subsidiaries, except proceedings which, if adversely
-3-
<PAGE>
determined, would not have a material adverse effect on the Company and its
subsidiaries taken as a whole; and
(iv) promptly after the Company shall obtain knowledge of the
occurrence of any Event of Default (as hereinafter defined) or any event which
with notice or lapse of time or both would become an Event of Default (an Event
of Default or such other event being a "Default"), a notice specifying that such
notice is a "Notice of Default" and describing such Default in reasonable
detail, and, in such Notice of Default or as soon thereafter as practicable, a
description of the action the Company has taken or proposes to take with respect
thereto.
(c) Shall not permit the creation of any security interest not in
existence on the date hereof to be created or exist covering the assets of the
Company.
5. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an event of
default (an "Event of Default"):
(a) A default in the payment of the principal on any Note, when and as the
same shall become due and payable.
(b) A default in the payment of any interest on any Note, when and as the
same shall become due and payable, which default shall continue for five
business days after the date fixed for the making of such interest payment.
(c) A default in the performance, or a breach, of any of the covenants of
the Company contained in Section 4 of this Note.
(d) A default in the performance, or a breach, of any other covenant or
agreement of the Company in this Note and continuance of such default or breach
for a period of 30 days after receipt of notice from the Holder as to such
breach or after the Company had or should have had knowledge of such breach.
(e) Any representation, warranty, or certification made by the Company
pursuant to this Note or the Subscription Agreements shall prove to have been
false or misleading as of the date made in any material respect.
(f) A final judgment or judgments for the payment of money in excess of
$1,000,000 in the aggregate shall be rendered by one or more courts,
administrative or arbitral tribunals or other bodies having jurisdiction against
the Company and the same shall not be discharged (or provision shall not be made
for such discharge), or a stay of execution thereof shall not be procured,
within 60 days from the date of entry thereof and the Company shall not, within
such 60-day period, or
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<PAGE>
such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal.
(g) The entry of a decree or order by a court having jurisdiction
adjudging the Company bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment, or composition of or in respect of the
Company, under federal bankruptcy law, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency, or other similar law,
and the continuance of any such decree or order unstayed and in effect for a
period of 60 days; or the commencement by the Company of a voluntary case under
federal bankruptcy law, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency, or other similar law, or the consent by
it to the institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization or relief
under federal bankruptcy law or any other applicable federal or state law, or
the consent by it to the filing of such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator, or similar official of
the Company or of any substantial part of its property, or the making by it of
an assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
6. REMEDIES UPON DEFAULT.
(a) Upon the occurrence of an Event of Default referred to in Section
5(g), the principal amount then outstanding of, and the accrued interest on,
this Note shall automatically become immediately due and payable without
presentment, demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by the Company. Upon the occurrence of an Event of
Default referred to in Section 5(a) or (b), the Holder, by notice in writing
given to the Company, may declare the entire principal amount then outstanding
of, and the accrued interest on, this Note to be due and payable immediately,
and upon any such declaration the same shall become and be due and payable
immediately, without presentation, demand, protest, or other formalities of any
kind, all of which are expressly waived by the Company. Upon the occurrence of
an Event of Default other than one referred to in Sections 5(a), (b) or (g), the
Holders of not less than 50% in principal amount of then outstanding Notes
(excluding any Notes held by or for the account of the Company or any affiliate
of the Company) may declare the principal amount then outstanding of, and the
accrued interest on, the Notes to be due and payable immediately, and upon such
declaration the same shall become due and payable immediately, without
presentation, demand, protest, or other formalities of any kind, all of which
are expressly waived by the Company.
(b) The Holder may institute such actions or proceedings in law or equity
as it shall deem expedient for the protection of its rights and may prosecute
and enforce its claims against all assets of the Company, and in connection with
any such action or proceeding shall be entitled to receive from the Company
payment of the principal amount of this Note plus accrued interest to the date
of payment plus reasonable expenses of collection, including, without
limitation, attorneys' fees and expenses.
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<PAGE>
7. TRANSFER.
(a) Any Notes issued upon the transfer of this Note shall be numbered and
shall be registered in a Note Register as they are issued. The Company shall be
entitled to treat the registered holder of any Note on the Note Register as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Note on the part of any other
person, and shall not be liable for any registration or transfer of Notes which
are registered or to be registered in the name of a fiduciary or the nominee of
a fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Note shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment,
or authority to transfer. In all cases of transfer by an attorney, executor,
administrator, guardian, or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Note or Notes to the person entitled
thereto. This Note may be exchanged, at the option of the Holder thereof, for
another Note, or other Notes of different denominations, of like tenor and
representing in the aggregate a like principal amount, upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Notes to be transferred on its books
to any person if, in the opinion of counsel to the Company, such transfer does
not comply with the provisions of the Securities Act and the rules and
regulations thereunder.
(b) The Holder acknowledges that he has been advised by the Company that
this Note has not been registered under the Securities Act, that this Note is
being issued on the basis of the statutory exemption provided by Section 4(2) of
the Act or Regulation D promulgated thereunder, or both, relating to
transactions by an issuer not involving any public offering, and that the
Company's reliance thereon is based in part upon the representations made by the
original Holder in the original Holder's Subscription Agreement executed and
delivered in accordance with the terms of the Offering. The Holder acknowledges
that he has been informed by the Company of, or is otherwise familiar with, the
nature of the limitations imposed by the Securities Act and the rules and
regulations thereunder on the transfer of securities. In particular, the Holder
agrees that no sale, assignment or transfer of this Note shall be valid or
effective, and the Company shall not be required to give any effect to any such
sale, assignment or transfer, unless (i) the sale, assignment, or transfer of
this Note is registered under the Securities Act, it being understood that this
Note is not currently registered for sale and that the Company has no obligation
or intention to so register the Notes, or (ii) this Note is sold, assigned, or
transferred in accordance with all the requirements and limitations of Rule 144
under the Act, it being understood that Rule 144 is not available at the time of
the original issuance of this Note for the sale of this Note and that there can
be no assurance that Rule 144 sales will be available at any subsequent time, or
(iii) such sale, assignment, or transfer is otherwise exempt from registration
under the Securities Act.
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<PAGE>
8. MISCELLANEOUS.
(a) Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex or
similar telecommunications equipment) against receipt to the party to whom it is
to be given, (i) if to the Company, at its address at 300 Oceangate, 5th Floor,
Long Beach, California 90802, Attention: President, (ii) if to the Holder, at
its address set forth on the first page hereof, or (iii) in either case, to such
other address as the party shall have furnished in writing in accordance with
the provisions of this Section 8(a). Notice to the estate of any party shall be
sufficient if addressed to the party as provided in this Section 8(a). Any
notice or other communication given by certified mail shall be deemed given at
the time of certification thereof, except for a notice changing a party's
address which shall be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section 8(a) shall be deemed given at the
time of receipt thereof.
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction, or mutilation of this Note (and upon surrender of this Note
if mutilated), the Company shall execute and deliver to the Holder a new Note of
like date, tenor, and denomination.
(c) No course of dealing and no delay or omission on the part of the
Holder in exercising any right or remedy shall operate as a waiver thereof or
otherwise prejudice the Holder's rights, powers or remedies. No right, power,
or remedy conferred by this Note upon the Holder shall be exclusive of any other
right, power, or remedy referred to herein or now or hereafter available at law,
in equity, by statute or otherwise, and all such remedies may be exercised
singly or concurrently.
(d) This Note may be amended only by a written instrument executed by the
Company and the Holder hereof. Any amendment shall be endorsed upon this Note,
and all future Holders shall be bound thereby.
(e) This Note has been negotiated and consummated in the State of
California and shall be governed by, and construed in accordance with, the laws
of the State of California, without giving effect to principles governing
conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
NETGATEWAY, INC.
BY:
------------------------------
KEITH D. FREADHOFF
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
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"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.
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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.
[**REDACTED**]
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[**REDACTED**]
6.) Agree during the term of this Agreement and for [**REDACTED**]
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
[**REDACTED**]
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
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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.
[**REDACTED**]
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
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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.
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I. [**REDACTED**]
J. TERM AND TERMINATION
This Agreement shall remain in effect for a period of [**REDACTED**]
from the Effective Date (the "Initial Term"). Thereafter, this Agreement
will automatically renew for additional consecutive [**REDACTED**] terms
("Renewal Terms") unless a written notice of intent to terminate is
given to either Party by the other Party [**REDACTED**] 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 [**REDACTED**] 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
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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
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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
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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.)
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<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
[**REDACTED**]
14
<PAGE>
[**REDACTED**]
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 [**REDACTED**]. 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 [**REDACTED**]. 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 [**REDACTED**]. 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. [**REDACTED**] 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.
[**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 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**]
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
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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 [**REDACTED**] (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 [**REDACTED**]
unless a party hereto elects not to so renew and notifies the other party in
writing of such election by a date, which is [**REDACTED**] 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.
[**REDACTED**]
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 [**REDACTED**] 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)
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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
----------------------
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EXHIBIT "A"
SPECIFICATIONS AND TIME LINE
See attached initial eCommerce Services Order Form.
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EXHIBIT "B"
[**REDACTED**]
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APPENDIX A - DESCRIPTION OF WORK PHASES 1 & 2
MARCH 24, 1999
[**REDACTED**]
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[**REDACTED**]
2 of 7
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[**REDACTED**]
[**REDACTED**]
3 of 7
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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:
[**REDACTED**]
Subscriber's Initials CTS
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[**REDACTED**]
SCHEDULE 1
[**REDACTED**]
Subscriber's Initials CTS
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[**REDACTED**]
Subscriber's Initials CTS
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"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
[**REDACTED**] 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 [**REDACTED**]. Such
term shall automatically be extended for additional one-year terms thereafter
unless either party notifies the other, not less than [**REDACTED**] 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.
[**REDACTED**]
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).
[**REDACTED**]
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
NAME OF RESELLER WIRELESS ONE, INC.
DATE OF AGREEMENT: MAY 20
[**REDACTED**]
<PAGE>
MALL DEVELOPMENT SERVICES AND PRICES
[**REDACTED**]
<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 [**REDACTED**]. 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 [**REDACTED**].
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 [**REDACTED**]. 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. [**REDACTED**] 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 [**REDACTED**] ("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 [**REDACTED**]
unless a party hereto elects not to so renew and notifies the other party in
writing of such election by a date, which is [**REDACTED**] 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 [**REDACTED**] 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
SUBSCRIBER NAME: RELIANT INNOVATIONS, INC.
FORM DATE: June 6, 1999
FORM NO.: 001
TERMS:
[**REDACTED**]
<PAGE>
[**REDACTED**]
SUBSCRIBER'S INITIALS DR
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<PAGE>
[**REDACTED**]
SUBSCRIBER'S INITIALS DR
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<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
[**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 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 [**REDACTED**]. 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 [REDACTED] 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. [**REDACTED**]
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.
[**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**]
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.
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<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.
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<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
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<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.
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<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,
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<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
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<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.
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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. [**REDACTED**]
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS OF
STATE OF NEVADA
RESTRICTED STOCK
-------------- ---------------
NUMBER SHARES
-------------- [LOGO] ---------------
2072 ***50,000***
-------------- ---------------
-------------- ---------------
CUSIP NO. 641111 10 9
NETGATEWAY, INC.
25,000,000 AUTHORIZED SHARES $.001 PAR VALUE NON-ASSESSABLE
THIS CERTIFIES THAT ***MEDIAONE OF COLORADO INC***
IS THE REGISTERED HOLDER OF ***FIFTY THOUSAND SHARES***
SHARES OF NETGATEWAY, INC. COMMON STOCK
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES
OF ITS DULY AUTHORIZED OFFICERS.
COUNTERSIGNED AND REGISTERED
DATED: July 14, 1999 COLONIAL STOCK TRANSFER
Salt Lake City, Utah
BY /s/ [ILLEGIBLE]
TRANSFER AGENT AND REGISTRAR-AUTHORIZED SIGNATURE
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
SECRETARY [SEAL] PRESIDENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 [**REDACTED**] right and license to resell
and sublicense (in the case of software products), the Services to
Distributor's reseller customers; [**REDACTED**] 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 [**REDACTED**] The
Agreement shall automatically be extended for successive [**REDACTED**] 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.
[**REDACTED**]
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
----------------------------------------
[**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.
[**REDACTED**]
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. [**REDACTED**] 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, [**REDACTED**] 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 [**REDACTED**].
Such term shall be automatically extended for successive terms of
[**REDACTED*] 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
[**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 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 [**REDACTED**].
Such term shall automatically be extended for additional [**REDACTED**] 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. [**REDACTED**] 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
----------------- -----------------------------------------
[**REDACTED**]
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.
[**REDACTED**]
<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 [**REDACTED**]. 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 [**REDACTED**].
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 [**REDACTED**]. 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. [**REDACTED**] 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. 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 [**REDACTED**] ("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
[**REDACTED**] 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 [**REDACTED**] 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
Subcriber Name: B2BSTORES.COM INC.
Form Date: July 28, 1999
Form No.: 001
[**REDACTED**]
<PAGE>
[**REDACTED**]
Subscriber's Initial WJK
---------
<PAGE>
EMPLOYMENT AGREEMENT, dated as of August 13, 1999 (the
"Agreement"), between and among Netgateway, Inc., a corporation
organized under the laws of the State of Nevada (the "Company"),
Netgateway, a corporation organized under the laws of the State of
Nevada and a wholly owned subsidiary of the Company (the "Employer"),
and Roy W. Camblin III (the "Executive").
- --------------------------------------------------------------------------------
The Company and the Employer desires to retain the Executive to supply
services to the Company and the Employer, and the Executive desires to provide
the services to the Company and the Employer, on the terms and subject to the
conditions set forth in this Agreement.
In consideration of (i) the Executive's agreement to supply the
services under this Agreement and (ii) the mutual agreements set forth below,
the sufficiency of which is hereby acknowledged, the Company, the Employer and
the Executive agree as follows:
1. SERVICES; TERM.
(a) The Employer hereby employs the Executive, and the Executive
hereby agrees to be employed by the Employer, as Chief Information Officer of
the Employer, and the Executive will use his best efforts to perform services
for the Employer in accordance with directions given to Executive from time to
time by the Board of Directors of the Company (the "Board").
(b) The Executive shall participate in the operation of the
business of the Employer (the "Business"), and assume and perform all duties and
responsibilities consistent with his title and position (the "Services") as from
time to time requested by the Employer.
(c) The Executive shall be employed for the period commencing on
the date of this Agreement (the "Effective Date") and ending on July 25, 2000,
unless sooner terminated pursuant to the provisions of this Agreement (such
period being referred to as the "Employment Period"); PROVIDED, HOWEVER, that on
the first anniversary of the Effective Date (and on each succeeding anniversary
of the Effective Date during the Employment Period), the Employment Period shall
automatically be extended by an additional year (unless the Company, the
Employer or Executive shall give the other at least 90 days' notice to the
contrary).
2. PERFORMANCE BY EXECUTIVE. During the Employment Period, the
Executive shall devote all of his business time, attention, knowledge and skills
<PAGE>
to, and use his best efforts to perform, the Services and shall promote the
interests of the Employer in carrying out the Services. Other than the
restrictions contained in Sections 5 and 6 of this Agreement, nothing herein
shall be deemed to preclude the Executive from continuing to serve on the board
of directors of any business corporation or any charitable organization on which
he now serves or, subject to the prior approval of the Board, from accepting
appointment to additional boards of directors, provided that such activities do
not materially interfere with the performance of Executive's duties hereunder.
3. COMPENSATION AND BENEFITS. During the Employment Period:
(a) BASE COMPENSATION. As compensation for the Services, the
Company shall pay Executive an annual base salary at the rate of $175,000 per
year or such higher amount as the Company's Compensation Committee (the
"Committee") may from time to time determine (the "Base Salary"), payable in
accordance with the Employer's payroll practices. The Base Salary shall be
increased (but not decreased) for cost of living adjustments, and subject to
discretionary increase, as determined by an annual review by the Committee on or
prior to each anniversary of the Effective Date.
(b) CASH BONUS. For each calendar year during the Employment
Period commencing on January 1, 2000, Executive shall be entitled to participate
in any annual bonus plan of the Company or the Employer and to receive an annual
performance bonus from the Company or the Employer in accordance with the terms
thereof.
(c) STOCK OPTIONS. The Executive will be granted a number of
options pursuant to the Employer's 1998 Executive Stock Option Plan (the
"Options") to purchase 200,000 shares of the common stock, par value $.01 per
share, of the Company, on terms and conditions to be embodied in a separate
option agreement between the Employer and the Executive (the "Option
Agreement").
(d) BENEFIT PLANS. The Executive shall be entitled to receive
benefits from the Employer consistent with those in effect for the Employer's
senior executives, as those benefits are revised from time to time by the Board
of Directors of the Employer. Except as specifically provided in this Section 3,
nothing contained herein is intended to require the Employer to maintain any
existing benefits or create any new benefits.
(e) VACATIONS AND HOLIDAYS. The Executive shall be entitled to
vacation and paid holidays in accordance with the Employer's policy.
4. TERMINATION.
(a) DEATH OR DISABILITY. If the Executive dies during the
Employment Period, the Employment Period shall terminate as of the date of the
Executive's death. If the Executive becomes unable to perform the Services for
180
2
<PAGE>
consecutive days due to a physical or mental disability, (i) the Employer
may elect to terminate the Employment Period any time thereafter, and (ii) the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician acceptable to both the Employer
and the Executive, or, in case the Employer and the Executive cannot agree upon
a physician within 15 days, then by a physician selected by physicians
designated by each of the Employer and the Executive. The Executive's failure to
submit to any physical examination by such physician after such physician has
given reasonable notice of the time and place of such examination shall be
conclusive evidence of the Executive's inability to perform his duties
hereunder.
(b) CAUSE. The Company or the Employer, at its option, may
terminate the Employment Period and all of the obligations of the Company and
the Employer under this Agreement for Cause. The Employer shall have "Cause" to
terminate the Executive's employment hereunder in the event of (i) the
Executive's conviction of, or plea of guilty or NOLO CONTENDERE to a felony,
(ii) the Executive's gross negligence in the performance of the Services, which
is not corrected within 15 business days after written notice, (iii) the
Executive's knowingly dishonest act, or knowing bad faith or willful misconduct
in the performance of the Services to the material detriment of the Company,
which is not corrected within 15 business days after written notice, or (iv) the
Executive's other material breach of his obligations under this Agreement, which
is not corrected within a reasonable period of time (determined in light of the
cure appropriate to such material breach, but in no event less than 15 business
days) after written notice.
(c) WITHOUT CAUSE. The Company or the Employer, at its option, may
terminate the Employment Period without Cause at any time upon 30 days advance
written notice.
(d) TERMINATION BY EXECUTIVE FOR GOOD REASON. The Executive may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined below) if the basis for such Good Reason is not cured
within a reasonable period of time (determined in light of the cure appropriate
to the basis of such Good Reason, but in no event less than 15 business days)
after the Employer receives written notice specifying the basis of such Good
Reason. "Good Reason" shall mean (i) the failure of the Employer to pay any
undisputed amount due under this Agreement or a substantial diminution in
benefits provided under this Agreement, (ii) a substantial diminution in status,
position and responsibilities of the Executive, (iii) the Employer requiring the
Executive to be based at any office or location that requires a relocation or
commute greater than 50 miles from the office or location to which the Executive
is currently assigned, (iv) Keith Freadhoff shall cease to be employed by the
Company as Chief Executive Officer or (v) the Employer's other material breach
of his obligations under this Agreement.
(e) WITHOUT GOOD REASON. The Executive, at his option, may
terminate the Employment Period without Good Reason at any time upon 30 days
advance written notice.
3
<PAGE>
(f) PAYMENTS IN THE EVENT OF TERMINATION. Upon the termination of
the Employment Period for death, disability, by the Executive without Good
Reason, or by the Employer for Cause, the Employer shall pay to the Executive,
or his estate, as the case may be, the Base Salary and Performance Bonus earned
to the date of death or termination for disability or Cause, as the case may be.
In addition, all vested and unexercised Options shall remain exercisable by the
Executive for a period of 365 days. Upon the termination of the Employment
Period by the Employer without Cause or by the Executive for Good Reason, the
Employer shall pay to the Executive (A) the Base Salary and Performance Bonus
earned to the date of such termination, and (B) an additional amount in a lump
sum in cash equal to the Base Salary at the time of termination for a period
beginning on the date of such termination, and ending on the date that the
Employment Period would have ended pursuant to this Agreement had there been no
termination of Executive's employment; PROVIDED, HOWEVER, that such period shall
be calculated without taking into account any extensions as provided in Section
1.c; and PROVIDED, FURTHER, that in no event shall such period be less than
twelve months. In addition, all vested and unexercised Options shall become and
remain exercisable by the Executive until the expiration date of the Options
pursuant to the Option Agreement.
(g) TERMINATION FOLLOWING A CHANGE IN CONTROL. If, within the two
year period following a Change in Control (as defined below), (X) Executive's
employment is terminated by the Company or by the Employer for any reason other
than Executive's death or disability or for Cause, or (Y) Executive terminates
his employment for Good Reason, (i) the Company or the Employer shall pay
Executive as severance a lump sum amount equal to (A) two times the sum of (1)
Executive's then Base Salary plus (2) Executive's highest annual Performance
Bonus in the three year period immediately preceding such Change in Control and
(B) the present value of all other benefits otherwise payable through the then
remaining Employment Period under Sections 3(d) and 3(f) of this Agreement, and
(ii) all outstanding equity incentive awards shall immediately vest, and
Executive shall be entitled to receive a lump sum amount equal to the "spread"
on any then outstanding stock options or similar awards held by Executive in
exchange for the surrender and cancellation of such awards. A Change in Control
shall be deemed to have occurred if any of the following conditions shall have
been satisfied: (i) any "person" as such term is used in Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company; any trustee or other fiduciary holding securities under an
employee benefit plan of the Company; or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership at such time of stock of the Company), is or
becomes after the Effective Date the "beneficial owner" (as defined in Rules
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company (not included in the securities beneficially owned by such person any
securities acquired directly from the Company) representing 35% or more of the
combined voting power of the Company's then outstanding securities, (ii) during
any period of two consecutive years (not including any period prior to the
Effective Date), individuals who at the beginning of such period constitute the
Board of Directors, and any new director (other than a director designated by a
person who has entered into an agreement with the
4
<PAGE>
Company to effect a transaction described within this definition of Change in
Control) whose election by the Board of Directors or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds
of the Board of Directors then still in office who either were members of the
Board of Directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof, (iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other entity and,
in connection with such merger or consolidation, individuals who constitute
the Board of Directors immediately prior to the time any agreement to effect
such merger or consolidation is entered into fail for any reason to
constitute at least a majority of the board of directors of the surviving
corporation following the consummation of such merger or consolidation, or
(iv) the stockholders of the Company approve (a) a plan of complete
liquidation of the Company or (b) an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets.
(h) EXCISE TAX GROSS UP. In the event any of the payments
hereunder shall become subject to the excise tax imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar or
successor provision of federal, state or local law, the Company or the Employer
shall pay to Executive such additional amounts as may be necessary to offset
fully the tax effects of such excise tax or taxes, in accordance with the
procedures set forth in Exhibit B hereto.
(i) TERMINATION OF OBLIGATIONS. In the event of termination of the
Employment Period in accordance with this Section 4, all obligations of the
Employer and the Executive under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Sections 4(f), 4(g)
and 4(h) of this Agreement; PROVIDED, HOWEVER, that notwithstanding anything to
the contrary in this Agreement, the provisions of Section 5 and Section 6 shall
survive such termination in accordance with their respective terms, and the
relevant provisions of Section 7 shall survive such termination indefinitely. In
the event of termination of the Employment Period in accordance with this
Section 4, the Executive agrees to cooperate with the Employer in order to
ensure an orderly transfer of the Executive's duties and responsibilities.
5. CONFIDENTIALITY; NON-DISCLOSURE.
(a) Except as provided in this Section 5(a), the Executive shall
not disclose any confidential or proprietary information of the Company and the
Employer or of their affiliates or subsidiaries to any person, firm,
corporation, association or other entity (other than the Company, the Employer,
their subsidiaries, officers or executives, attorneys, accountants, bank
lenders, agents, advisors or representatives thereof) for any reason or purpose
whatsoever (other than in the normal course of business on a need-to-know basis
after the Company or the Employer has received assurances that the confidential
or proprietary information shall be kept confidential), nor shall the Executive
make use of any such confidential or proprietary information for his own
purposes or for the benefit of any person, firm, corporation or other entity,
except
5
<PAGE>
the Company and the Employer. As used in this Section 5(a), the term
"confidential or proprietary information" means all information which is or
becomes known to the Executive and relates to matters such as trade secrets,
research and development activities, new or prospective lines of business
(including analysis and market research relating to potential expansion of
the business), books and records, financial data, customer lists, marketing
techniques, financing, credit policies, vendor lists, suppliers, purchases,
potential business combinations, services procedures, pricing information and
private processes as they may exist from time to time; PROVIDED that the term
"confidential or proprietary information" shall not include information that
is or become generally available to the public (other than as a result of a
disclosure in violation of this Agreement by the Executive or by a person who
received such information from the Executive in violation of this Agreement).
(b) If the Executive is requested or (in the opinion of his
counsel) required by law or judicial order to disclose any confidential or
proprietary information, the Executive shall provide the Company or the Employer
with prompt notice of any such request or requirement so that the Company or the
Employer may seek an appropriate protective order or waiver of the Executive's
compliance with the provisions of Section 5(a). The Executive will not oppose
any reasonable action by, and will cooperate with, the Employer to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. If,
failing the entry of a protective order or the receipt of a waiver hereunder, he
is, in the opinion of his counsel, compelled by law to disclose a portion of the
confidential or proprietary information, the Executive may disclose to the
relevant tribunal without liability hereunder only that portion of the
confidential or proprietary information which counsel advises the Executive he
is legally required to disclose, and each of the parties hereto agrees to
exercise such party's best efforts to obtain assurance that confidential
treatment will be accorded such confidential or proprietary information. During
the Employment Period, and for matters arising from events or circumstances
occurring during the Employment Period, the Company and the Employer will
provide for the defense of matters arising under this provision.
6. NON-SOLICITATION. The Executive agrees that he shall not,
during and for the period commencing on the Effective Date and ending on the
date that is one year after the termination of the Employment Period, for any
reason whatsoever, either individually or as an officer, director, stockholder,
partner, agent or principal of another business firm, induce any executive or
employee of the Company, the Employer or any of their affiliates or subsidiaries
to terminate such person's employment with the Company, the Employer or such
affiliate or subsidiary or hire any executive or employee of the Company, the
Employer or any of their affiliates to work with any business affiliated with
the Executive; PROVIDED, HOWEVER, that the provisions of this Section 6 shall
not apply in the event that the Company or the Employer materially breaches its
obligations under this Agreement.
6
<PAGE>
7. GENERAL PROVISIONS
(a) ENFORCEABILITY. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the
Executive, the Company and the Employer consider the restrictions contained in
this Agreement to be reasonable for the purpose of preserving the Employer's
goodwill and proprietary right, if any particular provision of this Agreement
shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. It
is expressly understood and agreed that although the Company, the Employer and
the Executive consider the restrictions contained in Section 6 to be reasonable,
if a final determination is made by a court of competent jurisdiction that the
time or territory or any other restriction contained in this Agreement is
unenforceable against the Executive, the provisions of this Agreement shall be
deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable.
(b) REMEDIES. The parties acknowledge that the Company's and the
Employer's damages at law would be an inadequate remedy for the breach by the
Executive of any provision of Section 5 or Section 6, and agree in the event of
such breach that the Company or the Employer may obtain temporary and permanent
injunctive relief restraining the Executive from such breach and, to the extent
permissible under the applicable statutes and rules of procedure, a temporary
injunction may be granted immediately upon the commencement of any such suit.
Nothing contained herein shall be construed as prohibiting the Company or the
Employer from pursuing any other remedies available at law or equity for such
breach or threatened breach of Section 5 or Section 6 of this Agreement.
(c) WITHHOLDING. The Employer shall withhold such amounts from any
compensation or other benefits referred to herein as payable to the Executive on
account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(d) ASSIGNMENT; BENEFIT. This Agreement is personal in its nature
and the parties hereto shall not, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
PROVIDED that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company and the Employer, whether by merger,
consolidation, transfer of all or substantially all of its assets, or otherwise.
(e) INDEMNITY. The Company and the Employer hereby agrees to
indemnify and hold the Executive harmless consistent with the Employer's policy
against any and all liabilities, expenses (including attorney's fees and costs),
claims,
7
<PAGE>
judgements, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any proceeding arising out of the Executive's
employment with the Employer (whether civil, criminal, administrative or
investigative, other than proceedings by or in the right of the Company or
the Employer), if with respect to the actions at issue in the proceeding the
Executive acted in good faith and in a manner Executive reasonably believed
to be in, or not opposed to, the best interests of the Company and the
Employer, and (with respect to any criminal action) Executive had no reason
to believe Executive's conduct was unlawful. Said indemnification arrangement
shall (i) survive the termination of this Agreement, (ii) apply to any and
all qualifying acts of the Executive which have taken place during any period
in which he was employed by the Employer, irrespective of the date of this
Agreement or the term hereof, including, but not limited to, any and all
qualifying acts as an officer and/or director of any affiliate while the
Executive is employed by the Employer and (iii) be subject to any limitations
imposed from time to time under applicable law.
(f) NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
If to the Employer:
NetGateway
300 Oceangate
Long Beach, CA 90802
Attention: Secretary
Facsimile: 562-308-0021
With a copy to
NetGateway, Inc.
300 Oceangate
Long Beach, CA 90802
Attention: General Counsel
Facsimile: 562-308-0021
If to the Executive:
Roy W. Camblin III
737 Congo Street
San Francisco, CA 94131
Facsimile: 562-308-0021
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is
8
<PAGE>
mailed, such communication shall be deemed to have been given on the fifth
business day following the date on which such communication is posted.
(g) DISPUTE RESOLUTION; ATTORNEY'S FEES. The Company, the Employer
and the Executive agree that any dispute arising as to the parties' rights and
obligations hereunder shall be resolved by binding arbitration before a private
judge to be determined by mutually agreeable means. In such event, each of the
Company, the Employer and the Executive shall have the right to full discovery.
The Executive shall have the right, in addition to any other relief granted by
such arbitrator, to attorneys' fees in the event that a claim brought by the
Executive is decided in the Executive's favor (with the amount of such fees
being limited to those expended defending the claim or claims decided in favor
of the Executive). Any judgment by such arbitrator may be entered into any court
with jurisdiction over the dispute.
(h) ACKNOWLEDGEMENT. Executive acknowledges that he has been
advised by Employer to seek the advice of independent counsel prior to reaching
agreement with Employer on any of the terms of this Agreement.
(i) AMENDMENTS AND WAIVERS. No modification, amendment or waiver
of any provision of, or consent required by, this Agreement, nor any consent to
any departure herefrom, shall be effective unless it is in writing and signed by
the parties hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
(j) DESCRIPTIVE HEADINGS; CERTAIN INTERPRETATIONS. Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(k) COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be executed
in any number of counterparts, and each such counterpart hereof shall be deemed
to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement and the Option Agreement contain the
entire agreement among the parties with respect to the transactions contemplated
by this Agreement and the Option Agreement and supersede all prior agreements or
understandings among the parties with respect to the Executive's employment by
the Employer.
(l) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(M) CONSENT TO JURISDICTION. EACH OF THE COMPANY, THE EMPLOYER AND
THE EXECUTIVE HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN LOS ANGELES COUNTY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS
9
<PAGE>
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND THE EXECUTIVE AGREES NOT TO COMMENCE ANY LEGAL PROCEEDING
RELATING THERETO EXCEPT IN SUCH COURT. EACH OF THE COMPANY, THE EMPLOYER AND
THE EXECUTIVE IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH HE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NETGATEWAY, INC.
By:_________________________________
Name:
Title:
NETGATEWAY
By: ________________________________
Name:
Title:
------------------------------------
Roy W. Camblin III
10
<PAGE>
EXHIBIT B
GROSS-UP PAYMENT
In the event that any payment received by Executive or paid by the
Company or the Employer on behalf of Executive under this Agreement or under any
other plan, arrangement or agreement with the Company, the Employer or any
person whose actions result in a Change in Control (provided that the Company
and the Employer approve of the arrangement pursuant to which the payment by
such person is made to Executive) or any person affiliated with the Company or
the Employer or such person (collectively, the "Total Payments") will be subject
to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code, the
Company or the Employer shall pay to Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained or to be retained by
Executive, after deduction of any Excise Tax on the Total Payments and on any
Federal, state and local income, excise and/or other taxes upon the Gross-Up
Payment provided for hereunder, shall be equal to the Total Payments.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) the Total
Payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors and reasonably acceptable to Executive, the Total Payments (in whole or
in part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors in
accordance with the principles of Section 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income and other taxes at the highest
applicable marginal rate of taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income and other taxes at the highest
applicable marginal rate of taxation in the state and locality of Executive's
residence on the date the Gross-Up Payment is to be made, net of the maximum
reduction in Federal income taxes which could be obtained from deduction of such
state and local taxes and any other taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount originally taken into account
hereunder, Executive shall repay to the Company or to the Employer, as the case
may be, at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
Federal, state and local income and other taxes imposed on the Gross-Up Payment
being repaid by Executive to the extent that such repayment results in an actual
reduction in Excise Tax and/or a Federal, state or local income tax deduction)
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code (provided, however, that if all or any portion of the
amount of any repayment made to Executive by any governmental entity shall be
made at a higher rate of interest than that provided under Section 1274(b)(2)(B)
of the Code (the "Higher Interest Rate Amount"), Executive shall also repay to
the Company or to the Employer, as the case may be, interest on the Higher
Interest Rate Amount at a rate equal to the excess of such higher rate of
interest over the rate provided under Section 1274(b)(2)(B) of the Code). In the
event that the Excise Tax is determined to exceed the amount originally taken
into account hereunder (including
11
<PAGE>
by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company or the Employer,
as the case may be, shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions to tax payable by
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The parties agree that such excess will be
considered to have been finally determined at the conclusion of Internal
Revenue Service administrative appellate proceedings, unless the parties
mutually agree to pay or settle such amount earlier, or agree to pursue an
appeal further. Each of Executive, the Company and the Employer shall
reasonably cooperate with each other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments. In the event of an audit or
other administrative or judicial proceeding relating to or arising from the
issue of potential liability for the Excise Tax, the Company shall pay all
attorneys' and accountants' fees and other costs reasonably incurred by the
Executive in connection with the audit or other proceeding to the extent such
fees and costs relate to such liability, provided, that in the case of
judicial or administrative proceedings, the Company consents to the pursuit
of such proceedings.
The Gross-Up Payment payable pursuant hereto shall be payable (or, as
applicable, withheld), in whole or in part as applicable, on the earlier of (i)
the date the Company or the Employer is required to withhold the Excise Tax
pursuant to Section 4999 of the Code, or (ii) the date the Executive is required
to pay the Excise Tax.
Executive shall notify the Company and the Employer of any audit or
review by the Internal Revenue Service of Executive's Federal income tax return
for the year in which a payment under this Agreement is made within ten days of
Executive's receipt of such audit or review. In addition, Executive shall also
notify the Company and the Employer of the final resolution of such audit or
review within then days of such resolution.
12
<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 [**REDACTED**].
Such term shall automatically be extended for additional [**REDACTED**] 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. [**REDACTED**] 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
[**REDACTED**]
PRICING FOR STOREFRONT SERVICES
[**REDACTED**]
<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.
[**REDACTED**]
<PAGE>
NETGATEWAY, INC.
1999 STOCK OPTION PLAN FOR EMPLOYEES
1. PURPOSE; TYPE OF AWARDS; CONSTRUCTION.
The purpose of the 1999 Stock Option Plan for Employees (the "Plan")
of NetGateway, Inc., a Nevada corporation (the "Company"), is to attract and
retain employees (including officers) of the Company, or any Subsidiary or
Affiliate which now exists or hereafter is organized or acquired, and to
furnish additional incentives to such persons by encouraging them to acquire
a proprietary interest in the Company. Pursuant to Section 6 of the Plan,
there may be granted Options, including "incentive stock options" and
"nonqualified stock options". The Plan is intended to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Exchange Act
and shall be interpreted in a manner consistent with the requirements thereof.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Administrator" means the Board or, if and so long as a Committee
has been established and is in existence, the Committee.
(b) "Affiliate" means any entity if, at the time of granting of an
Option, (i) the Company, directly, owns at least 20% of the combined voting
power of all classes of stock of such entity or at least 20% of the ownership
interests in such entity or (ii) such entity, directly or indirectly, owns at
least 20% of the combined voting power of all classes of stock of the Company.
(c) "Beneficiary" means the person, persons, trust or trusts which have
been designated by an Optionee in his or her most recent written beneficiary
designation filed with the Company to receive the benefits specified under the
Plan upon his or her death, or, if there is no designated Beneficiary or
surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the applicable laws of descent and distribution to receive
such benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company which
will be deemed to have occurred if:
(i) any "person," as such term is used in Section 13(d)
and 14(d) of the Exchange Act (other than an Exempt Person),
is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding
voting securities;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute
the Board, and any new director (other than a director
designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause
(i), (iii), or (iv) of this
<PAGE>
Section 2(e)) whose election by the Board or nomination for
election by the Company" stockholders was approved by a vote
of at least a majority of the directors then still in office
who either were directors at the beginning of the period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving or parent entity) 50% or more of
the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding
immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinbefore defined), other than an
Exempt Person, acquired 50% or more of the combined voting
power of the Company's then outstanding securities, or
(iv) the stockholders of the Company approve of a plan
of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or
substantially all of the Company's assets (or any
transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" means the committee, consisting exclusively of two or
more Non-Employee Directors (as defined in Rule 16b-3), if and as the same may
be established by the Board to administer the Plan; provided, however, that to
the extent required for the Plan to comply with the applicable provisions of
Section 162(m) of the Code, "Committee" means either such committee or a
subcommittee of that committee, as the case may be, which shall be constituted
to comply with the applicable requirements of Section 162(m) of the Code and the
regulations promulgated thereunder.
(h) "Company" means NetGateway, Inc., a corporation organized under the
laws of the State of Nevada, or any successor corporation.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(j) "Exempt Person" means (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, (3)
any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of Stock, or
(4) any person or group of persons who, immediately prior to the adoption of
this Plan, owned more than 50% of the combined voting power of the Company's
then outstanding voting securities.
(k) "Fair Market Value" means, with respect to Stock or other
<PAGE>
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
administrator. Notwithstanding the foregoing, the per share Fair Market Value
of Stock as of a particular date shall mean (I) if the shares of Stock are
then listed on a national securities exchange, the closing sales price per
share of Stock on the national securities exchange on which the Stock is
principally traded, for the last preceding date on which there was a sale of
such Stock on such exchange, or (ii) if the shares of Stock are then traded
on the National Market System of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), the reported per share closing
price of the Stock on the day prior to such date or, if there was no such
price reported for such date, on the next preceding date for which such a
price was reported, or (iii) if the shares of Stock are then traded in an
over-the-counter market other than on the NASDAQ National Market System, the
average of the closing bid and asked prices for the shares of Stock in such
over-the-counter market for the last preceding date on which there was a sale
of such Stock in such market, or (iv) if the shares of Stock are not then
listed on a national securities exchange or traded in an over-the-counter
market, such value as the Administrator, in its sole discretion, shall
determine in good faith.
(l) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "NQSO" means any Option not designated as an ISO.
(n) "Option" means a right, granted to an Optionee under Section
6(b) of the Plan, to purchase shares of Stock. An Option may be either an ISO
or an NQSO.
(o) "Optionee" means a person who, as an employee of the Company, a
Subsidiary or an Affiliate, has been granted an Option.
(p) "Plan" means this NetGateway, Inc. 1999 Stock Option Plan for
Employees as amended from time to time.
(q) "Rule 16b-3" means Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(r) "Stock" means the common stock, par value $.001 per share, of
the Company.
(s) "Stock Option Agreement" means any written agreement, contract,
or other instrument or document evidencing an Option.
(t) "Subsidiary" means any corporation in which the Company,
directly or indirectly, owns stock possessing 50% or more of the total
combined voting power of all classes of stock of such corporation.
3. ADMINISTRATION
The Plan shall be administered by the Administrator. The Administrator
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan,
<PAGE>
to administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Options; to determine the persons to whom and the time or times at
which Options shall be granted; to determine the type and number of Options
to be granted, the number of shares of Stock to which Options may relate and
the terms, conditions, restrictions and performance criteria relating to any
Options; to determine whether, to what extent, and under what circumstances
Options may be settled, canceled, forfeited, exchanged, or surrendered; to
make adjustments in the terms and conditions of, and the criteria and
performance objectives included in, Options in recognition of unusual or
non-recurring events affecting the Company or any Subsidiary or Affiliate or
the financial statements of the company or any Subsidiary or Affiliate, or in
response to changes in applicable laws, regulations, or accounting
principles; to designate Affiliates; to construe and interpret the Plan and
any Options; to prescribe, amend and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of the Stock Option
Agreements (which need not be identical for each Optionee); and to make all
other determinations deemed necessary or advisable for the administration of
the Plan.
The Administrator may appoint a chairperson and a secretary and may
make such rules and regulations for the conduct of its business as it shall
deem advisable, and shall keep minutes of its meetings. All determinations of
the Administrator shall be made by a majority of its members either present
in person or participating by conference telephone at a meeting or by written
consent. The Administrator may delegate to one or more of its members or to
one or more agents such administrative duties as it may deem advisable, and
the Administrator or any person to whom it has delegated duties as aforesaid
may employ one or more persons to render advice with respect to any
responsibility the Administrator or such person may have under the Plan. All
decisions, determinations and interpretations of the Administrator shall be
final and binding on all persons, including the Company, and any Subsidiary,
Affiliate or Optionee (or any person claiming any rights under the Plan from
or through any Optionee) and any stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any
Option granted hereunder.
4. ELIGIBILITY.
Options may be granted to employees of the Company and its present
or future Subsidiaries and Affiliates, in the discretion of the
Administrator. In determining the person to whom Options shall be granted and
the type of Options granted (including the number of shares to be covered by
such Options), the Administrator shall take into account such factors as the
Administrator shall deem relevant in connection with accomplishing the
purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Stock reserved for the grant of
Options under the Plan shall be [ ] shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in the open market, in private transactions or otherwise. The number
of shares of Stock available for issuance under the Plan shall be reduced by
the number of shares of Stock subject to outstanding Options. If any shares
subject to an Option are forfeited, canceled, exchanged or surrendered or if
an Option otherwise terminates or expires without a distribution of shares to
the Optionee, the shares of Stock with respect to such Option shall, to the
extent of any such forfeiture, cancellation, exchange, surrender, termination
or expiration, again be available for Options under the Plan. In no event
shall any Optionee acquire, pursuant to any
<PAGE>
awards of Options under this Plan, more than [ ]% of the aggregate number of
shares of Stock reserved for awards under the Plan.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of an Optionee under the Plan, then the Administrator shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (I) the number and kind of shares of Stock which may thereafter be issued
in connection with Options, (ii) the number and kind of shares of Stock issued
or issuable in respect of outstanding Options, and (iii) the exercise price,
grant price, or purchase price relating to any Option; PROVIDED THAT, with
respect to ISOs, such adjustment shall be made in accordance with Section 424(h)
of the Code.
6. SPECIFIC TERMS OF OPTIONS.
(a) General. The term of each Option shall be for such period as may be
determined by the Administrator. The Administrator may make rules relating to
Options, and may impose on any Option or the exercise thereof, at the date of
grant or thereafter, such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Administrator shall determine.
(b) Options. The Administrator is authorized to grant Options to
Optionees on the following terms and conditions:
(i) TYPE OF OPTION. The Stock Option Agreement evidencing
the grant of an Option under the Plan shall designate the Option
as an ISO (in the event its terms, and the individual to whom it
is granted, satisfy the requirements for ISOs under the Code), or
an NQSO.
(ii) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the
Administrator; provided that in the case of an ISO, such exercise
price shall be not less than the Fair Market Value of a share of
Stock on the date of grant of such Option and, in the case of an
ISO granted to the holder of more than 10% of the Stock
outstanding at the date of grant of such Option, such exercise
price shall be not less than 110% of the Fair Market Value on
such date of grant. In no event shall the exercise price for the
purchase of shares of Stock be less than par value. The exercise
price for Stock subject to an Option may be paid in cash or by an
exchange of Stock previously owned by the Optionee, or a
combination of both, in an amount having a combined value equal
to such exercise price. Any shares of Stock exchanged upon the
exercise of any Option shall be valued at the Fair Market Value
on the date on which such shares are exchanged. An Optionee also
may elect to pay all or a portion of the aggregate exercise price
by having shares of Stock with a Fair Market Value on the date of
exercise equal to the aggregate exercise price withheld by the
Company or sold by a broker-dealer in accordance with applicable
law.
(iii) TERM AND EXERCISABILITY OF OPTIONS. The date on which
the Administrator adopts a resolution expressly granting an
Option shall be considered the day on which such Option is
granted. Options shall be exercisable over the exercise period
(which shall not exceed ten years from the date of grant or five
years from the date
<PAGE>
of grant in the case of an ISO granted to a holder of more than
10% of Stock outstanding as of such date), at such times and upon
such conditions as the Administrator may determine, as reflected
in the Stock Option Agreement. An Option may be exercised to the
extent of any or all full shares of Stock as to which the Option
has become exercisable, by giving written notice of such exercise
to the Company's Secretary and paying the exercise price as
described in Section 6(b)(ii).
(iv) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Optionee is then in the employ of the
Company or any Subsidiary or Affiliate (or a company or a parent
or subsidiary company of such company issuing or assuming the
Option in a transaction to which Section 424(a) of the Code
applies), and unless the Optionee has continuously maintained any
of such relationships, since the date of grant of the Option;
PROVIDED THAT, the Stock Option Agreement may contain provisions
extending the exercisability of Options, in the event of
specified terminations, to a date not later than the expiration
date of such Option. The Administrator may establish a period
during which the Beneficiaries of an Optionee who died while an
employee, director or independent contractor of the Company or
any Subsidiary or Affiliate or during any extended period
referred to in the immediately preceding proviso may exercise
those Options which were exercisable on the date of the
Optionee's death; PROVIDED THAT, no Option shall be exercisable
after its expiration date.
(v) NONTRANSFERABILITY. Options shall not be transferable by
an Optionee except by will or the laws of descent and
distribution and shall be exercisable during the lifetime of an
Optionee only by such Optionee or his guardian or legal
representative.
(vi) OTHER PROVISIONS. Options may be subject to such other
conditions as the Administrator may prescribe in its discretion.
7. CHANGE IN CONTROL PROVISIONS.
In the event of a Change in Control, any and all Options then
outstanding shall become fully exercisable and vested, whether or not
theretofore vested and exercisable.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Plan, the
granting and exercising of Options thereunder, and the other obligations of the
Company under the Plan and any Stock Option Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Stock under any Option
until completion of such stock exchange listing or registration or qualification
of such Stock or other required action under any state, federal or foreign law,
rule or regulation as the Company may consider appropriate, and may require any
Optionee to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Stock in
compliance with applicable laws, rules and regulations.
(b) NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan or in
any Option granted or Stock Option Agreement entered into pursuant to the Plan
shall confer upon any Optionee the right to continue in the employ of the
Company, any Subsidiary or any Affiliate, as the case may be, or to be entitled
to any remuneration or benefits not set forth in the Plan or
<PAGE>
such Stock Option Agreement or to interfere with or limit in any way the right
of the Company or any such Subsidiary or Affiliate to terminate such Optionee's
employment, directorship or independent contractor relationship.
(c) TAXES. The Company or any Subsidiary or Affiliate is authorized
to withhold from any Option granted, any payment relating to an Option under
the Plan (including from a distribution of Stock), or any other payment to an
Optionee, amounts of withholding and other taxes due in connection with any
transaction involving an Option, and to take such other action as the
Administrator may deem advisable to enable the Company and an Optionee to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Option. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in
respect thereof in satisfaction of an Optionee's tax obligations.
(d) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part; PROVIDED THAT, no amendment which requires stockholder approval in
order for the Plan to continue to comply with Rule 16b-3 or Sections 422 and 424
of the Code and the regulations promulgated thereunder shall be effective unless
the same shall be approved by the requisite vote of the stockholders of the
Company entitled to vote thereon. Notwithstanding the foregoing, no amendment
shall affect adversely any of the rights of any Optionee, without such
Optionee's consent, under any Option theretofore granted under the Plan.
(e) NO RIGHTS TO OPTIONS; NO STOCKHOLDER RIGHTS. No Optionee shall
have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a stock certificate to such Optionee for
such shares.
(f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to constitute
an "unfunded" plan for incentive and deferred compensation. Nothing contained
in the Plan or any Option shall give any such Optionee any rights that are
greater than those of a general creditor of the Company.
(g) NO FRACTIONAL SHARES. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Option. The Administrator
shall determine whether cash, other Options, or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
(h) GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of
California without giving effect to the conflict of laws principles thereof.
(i) EFFECTIVE DATE. The Plan shall take effect upon its adoption by
the Board.
(j) PLAN TERMINATION. The Board may terminate the Plan at any time
with respect to any shares of Stock that are not subject to Options. Unless
terminated earlier by the Board, the Plan shall terminate ten years after the
effective date and no Options shall be granted under the Plan after such
date. Termination of the Plan under this Section 8(j) will not affect the
rights and obligations of any Optionee with respect to Options granted prior
to termination.
<PAGE>
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of the 18th day of November, 1998, by and between NETGATEWAY, a Nevada
Corporation (together with its subsidiaries, successors and assigns, the
"Company"), and LUIS MARCELO POVOLO ("EMPLOYEE").
RECITALS
A. UniNet has developed and is the sole owner of a computer software
program used by Shopping Planet and UniNet. The program is a small business
operating system that includes inventory management, purchasing management,
order fulfillment, order status, commission calculator, Web-based order
processing and payment processing (the "SOFTWARE").
B. Concurrently with the execution of this Agreement, the Company
and UniNet have entered into an agreement under which the Company has agreed,
subject to the terms and conditions thereof, to acquire the Software;
C. Prior to the date of this Agreement, the Employee has served as a
senior programmer for Pinamar Corporation, doing business as Shopping Planet
("SHOPPING PLANET") and UniNet Imaging, Inc. ("UNINET") and has been the
chief architect of the Software described below;
D. Employee is not a United States citizen and is currently allowed
in the United States pursuant to an H-1 Visa and it will be necessary for
Employee to apply for a change of company to update his Visa ("RESIDENCY
STATUS").
E. The commencement of employment under this Agreement is contingent
upon the successful completion of application to change Residence Status and
the reasonable assurance that Employee will be able to remain in the United
States for the three (3) year term of this Agreement.
<PAGE>
F. Concurrently with the execution of this Agreement, Company is
purchasing the Software from UniNet, a company in which Employee has an
ownership interest. It is acknowledged and understood that the Covenant Not
to Compete provisions set forth herein are given by Employee as additional
consideration for the purchase of the Software by Company from UniNet.
G. The Company desires to employee the Employee and to enter into
this Agreement embodying the terms of such employment and the Employee
desires to accept such employment and to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals and in
consideration of the premises and mutual covenants contained herein and for
other good and valuable consideration, the Company and the employee
(individually a "PARTY" and together the "PARTIES") agree as follows.
I. DEFINITIONS
1.1 "AFFILIATE" shall mean any person or entity controlling,
controlled by or under common control with the Corporation.
1.2 "BASE SALARY" shall mean the salary provided for in Section 3 of
this Agreement or any increased salary (a) granted to the Employee by the
Board, or (b) pursuant to the provisions of Section 3.
1.3 "BOARD" shall mean the Board of Directors of the Company.
1.4 "CAUSE" shall mean (a) the Employee is convicted of a felony
involving moral turpitude, or (b) the Employee is carrying out his duties
under this Agreement, is guilty of continued willful gross neglect or
continued willful gross misconduct resulting, in either case, in material
economic harm to the Company, unless such act, or failure to act, was
believed by the Employee in good faith to be in the best interests of the
Company or any Affiliate.
<PAGE>
1.5 "COMPANY" shall mean NetGateway, Inc., together with its
subsidiaries, successors and assigns.
1.6 "DISABILITY" shall mean the Employee's inability to render, for a
period of six consecutive months, full and effective services hereunder by
reason of permanent mental or physical disability, whether resulting from
illness, accident or otherwise; PROVIDED, HOWEVER, that in no event will the
Employee be considered disabled for the purposes of this Agreement unless he
is deemed disabled pursuant to the Company's long-term disability plan and
the Special LTD Policy.
1.7 "GROSS REVENUE" shall mean all gross sales proceeds and other
gross income that is earned, accrued or received by the Company or any
Affiliate during any specified period.
1.8 "TERM OF EMPLOYMENT" shall mean, initially, the period specified
in subsection 2.2 below, provided that such initial Term of Employment shall
automatically be extended thereafter for successive 12 month periods if
neither Party has advised the other in writing at least 12 months prior to
the end of the then current Term of Employment that such Term of Employment
shall not be extended for an additional 12 month period.
2. TERM OF EMPLOYMENT, POSITIONS AND DUTIES.
2.1 EMPLOYMENT ACCEPTED. The Company hereby employs the Employee, and
the Employee hereby accepts employment with the Company, for the Term of
Employment, in the position(s) and with the duties and responsibilities set
forth below, and upon such other terms and conditions as are hereinafter
stated.
2.2 INITIAL TERM OF EMPLOYMENT. The initial term of employment shall
commence upon the date of this Agreement and shall terminate upon the close
of business on 3rd anniversary of the date of this Agreement.
2.3 DUTIES AND RESPONSIBILITIES. During the Term of Employment, the
Employee shall be employed as an Application Architect by the Company or one
of its subsidiaries. The Employee in carrying out his duties under this
Agreement shall report to such
<PAGE>
officers or managers as the Company shall from time to time designate. During
the Term of Employment, the Employee shall devote his full business time and
attention to the business and affairs of the Company and shall use his best
efforts, skills and abilities to promote the Company's interests.
3. SALARY
3.1 BASE SALARY. During the Terms of Employment, the Employee shall
be entitled to receive a Base Salary payable no less frequently than in equal
semi-monthly installments at an annualized rate of Sixty Thousand Dollars
($60,000,000) per year.
3.2 EQUITY. In addition to the Base Salary, the Employee shall
receive as additional salary, stock options with an equity component valued
at Forty Thousand Dollars ($40,000,000)(the "EQUITY PORTION"). The Equity
Portion for any year shall be determined at the beginning of the year as
follows. The average closing price for the NetGateway stock over the five (5)
days immediately preceding the commencement of employment shall be determined
(the "AVERAGE PRICE"). For these purposes, only days in which stock is
actually traded shall be counted. The exercise price for Employee's options
will then be set at one-half (1/2) the Average Price and the difference
between the exercise price and the Average price will be determined and shall
be referred to herein as the "MARGIN AMOUNT." The amount of options to be
granted will be determined by dividing the Equity Portion by the Margin
Amount and rounding the result off to the next highest whole number to avoid
options for fractional shares. The amount of options so determined shall be
earned by and issued to Employee throughout the year on a monthly basis.
4. EMPLOYMENT BENEFIT PROGRAMS. During the Term of Employment, the
Employees shall be entitled to participate in all employee benefit programs
made available to the Company's Employees or salaried employees generally, as
such programs may be in effect from time to time, including, without
limitation, pension and other retirement plans, profit sharing plans, group
life insurance, accidental death and dismemberment insurance,
hospitalization, surgical, major medical coverage, long-term disability, sick
leave (including salary continuation
<PAGE>
arrangements), vacations, holidays and other employee benefit programs
sponsored by the Company, subject to any limitations imposed by applicable
Canadian or U.S. law.
5. BUSINESS EXPENSE REIMBURSEMENT AND VACATIONS.
5.1 EXPENSE REIMBURSEMENT. During the Term of Employment, the Employee
shall be entitled to receive reimbursement by the Company for all reasonable,
out-of-pocket expenses incurred by him in performing services under this
Agreement, provided, Employee obtains the prior written approval of the
Company to such expenditures.
5.2 VACATIONS. During the Term of Employment, the Employee shall also
be entitled to vacation time of at least 2 weeks per year, such time to
accrue ratably throughout the year.
6. TERMINATION OF EMPLOYMENT.
6.1 TERMINATION. In the event of the Employee's employment is
terminated for any reason, the Employee shall be entitled to:
(a) such portion of the Base Salary as has been earned but not
paid on the date of termination;
(b) any bonus awarded but not yet paid;
(c) reimbursement for expenses incurred but not paid prior to
such termination of employment;
(d) any stock or stock options accrued and vested but not yet
paid on the date of termination;
(e) in the case of death, the Employee's rights to other
compensation and benefits as may be provided in applicable plans and programs
of the Company shall be determined according to the terms and provisions of
such plans and programs.
6.2 TERMINATION BY THE COMPANY FOR CAUSE. In the event the Company
terminated the Employee's employment for Cause, the Employee shall be given
written notice that the Company intends to terminate his employment for
Cause. Such written notice shall specify
<PAGE>
the particular act or acts, or failure to act, which is or are the basis for
the decision to so terminate the Employee's employment for cause. The
Employee shall be given the opportunity within 30 days of the receipt of such
notice to meet with the Board to defend such act or acts, or failure to act,
and the Employee shall be given 30 days after such meeting to correct such
act or failure to act. Upon failure of the Employee, within 30 days, to
correct such act or failure to act, the Employee's employment by the Company
shall automatically be terminated under this Section for Cause.
Anything herein to the contrary notwithstanding, if, following a
termination of the Employee's employment by the Company for Cause based upon
the conviction of the Employee for a felony, such conviction is overturned on
appeal, the Employee shall be entitled to the payments and the economic
equivalent of the benefits he would have received if his employment had been
Terminated Without Cause.
6.3 VOLUNTARY TERMINATION. A "VOLUNTARY TERMINATION" shall mean a
termination of employment by the Employee on his own initiative other than
(i) a termination due to Disability, (ii) a termination due to the expiration
of the Term of Employment. Such a termination shall not be deemed a breach of
this Agreement and shall entitle the Employee to all of the rights and
benefits to which he would be entitled in the event of a termination for
Cause.
7. INDEMNIFICATION.
7.1 GENERAL. The Company agrees that if the Employee is made a party
or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "PROCEEDING"), by
reason of the fact that he is or was a director or officer of the Company or
is or was serving at the request of the Company as a director, officer,
member, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, whether or not the basis of such Proceeding is
alleged action in an official capacity as a director, officer, member,
employee or agent while service as a director, officer, member, employee or
agent, he shall be
<PAGE>
indemnified and held harmless by the Company to the fullest extent authorized
by California law, as the same exists or may hereafter be amended, against
all expense, liability and loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by the Employee in connection therewith.
7.2 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Section shall not be exclusive of any
other right which the Employee may have or hereafter may acquire under any
statute, provision of the certificate of incorporation or by-laws of the
Company, agreement, vote of stockholders or disinterested directors or
otherwise.
8. COVENANT NOT TO COMPETE OR ENGAGE IN CERTAIN OTHER ACTS.
8.1 NON-COMPETE. During the Term of Employment and for one (1) year
thereafter, the Employee shall not, directly or indirectly, except when
acting on behalf of the Company or on behalf of any affiliate of the Company,
engage in any business whether as an employee, consultant, partner,
principal, agent, representative or stockholder (other than as a stockholder
of less than a ten percent equity interest) or in any other corporate or
representative capacity, if it involves::
(a) business to business internet commerce in the Southern
California area (the "NON-COMPETE AREA"). For purposes hereof, Southern
California shall mean any area in Los Angeles, Orange or Ventura counties.
(b) rendering services or advice pertaining to business to
business Internet Commerce to, or on behalf of, any person, firm or
corporation in the Non-Compete Area; or
(c) engaging in, or rendering services or advice pertaining to
any other line of business that the Company was actively conducting or
actively considering during the Term of Employment in competition with the
Company in the Non-Compete Area.
<PAGE>
The parties acknowledge that Employee currently holds and will continue to
hold after the commencement of the term of this Agreement, an interest in
Pinamar Corporation and UniNet Imaging, Inc.
8.2 NON-ASSISTANCE; NON-DIVERSION. The Employee agrees that for the
period described in subparagraph 8.1 (a) above, except when acting on behalf
of the Company or any affiliate of the Company, he shall not:
(a) assist any other entity in eCommerce business or Internet
commerce or training business (the "RELEVANT BUSINESSES") or any other
line of business that the Company was actively conducting or was actively
considering during the Term of Employment in the Non-Compute Area;
(b) take any action to divert any Relevant Businesses business
from the Company or any business which was under active consideration by
the Company during the Term of Employment; or
(c) induce customers, agents, franchisees or other persons under
contract or franchise or otherwise doing business with the Company, to
terminate, reduce or alter business with or from the Company.
8.3 NON-SOLICITATION. The Employee agrees that for the Term of
Employment and for the period described in subsection 9.1 above, except when
acting on behalf of the Company or any affiliate of the Company, he shall not
induce any persons in the employment of the Company to (a) terminate such
employment, (b) accept employment with anyone other than the Company or an
affiliate of the Company or (c) interfere with the business of the Company in
any material manner.
8.4 SURVIVAL. The Employee agrees that the provisions of this Section
shall survive the termination of this Agreement and the termination of
the Employee's employment.
9. COVENANTS TO PROTECT CONFIDENTIAL INFORMATION
9.1 CONFIDENTIAL INFORMATION. The Employee shall not during the
Term of
<PAGE>
Employment or for a period of one year thereafter, without the prior written
consent of the Company, divulge, disclose or make accessible to any other
person, firm, partnership or corporation confidential information except while
employed by the Company in the business of and for the benefit of the Company
or when required to do so by a court of competent jurisdiction.
9.2 NOTES, MEMORANDA AND OTHER ITEMS. Except as may be otherwise
consented to in writing by the Company, the Employee shall proffer to an
appropriate officer of the Company, at the termination of his employment, all
memoranda, diaries, notes, records, cost information, customer lists,
marketing plans and strategies, and any other documents relating or referring
to any Confidential Information made available to the Employee by the Company
in his possession at such time.
10. EFFECT OF AGREEMENT ON OTHER BENEFITS. Nothing in this Agreement
shall curtail the Employee's entitlement to full participation in the Employee
compensation, employee benefit and other plans or programs in which senior
Employees of the Company are eligible to participate.
11. BENEFICIARIES/REFERENCES. The Employee shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Employee's death, and may change such
election, in either case by giving the Company written notice thereof. In
the event of the Employee's death or a judicial determination of his
incompetence, reference to this Agreement to the Employee shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative. Any reference to the masculine gender in this Agreement shall
include where appropriate, the feminine.
12. SURVIVORSHIP. The respective rights and obligations of the Parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section are in addition to the survivorship provisions of
any other section of this Agreement.
<PAGE>
13. REPRESENTATION. The Company represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Company and any other person, firm or organization.
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, between the Parties with respect thereto.
15. ASSIGNABILITY; BINDING NATURE. This Agreement shall be binding upon
and inure to the benefit of the Parties and their respective successors, heirs
and assigns. No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or
obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or the sale
of liquidation of all or substantially all of the assets of the
Company, provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or
transferee assumes the liabilities, obligations and duties of the Company, as
contained in this Agreement, either contractually or as a matter of law.
16. AMENDMENT OR WAIVER. No provision in this Agreement may be amended or
waived unless such amendment or waiver is agreed to in writing, signed by the
Employee. No waiver by the Employee of any breach by the other Party of any
condition or provision of this Agreement to be performed by such other Party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time.
17. SEVERABILITY. In the event that any provision or portion of this
Agreement, except Section 7, shall be determined to be invalid or
unenforceable for any reason, in whole or in part, the remaining provisions
of this Agreement shall be unaffected thereby and shall remain in full force
and effect to the fullest extent permitted by law. If Section 8 is determined
to be invalid
<PAGE>
or unenforceable for any reason, in whole or in part, the Employee may
terminate his employment with the Company and he shall immediately be
released by the Company from any obligations or duties under this Agreement and
the Company shall immediately be released by the Employee from any
obligations or duties under this Agreement.
18. HEADING. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning
or construction of any provision of this Agreement.
19. NOTICES. Any notice given to either Party shall be in writing and
shall be deemed to have been given when delivered personally or sent by
certified or registered mail, postage prepaid, return receipt requested, duly
addressed to the Party concerned at the address indicated below or to such
changed address as such Party may subsequently give notice of:
If to the Company:
NetGateway
300 Oceangate, Ste. 500
Long Beach, CA 90802
Attn: Donald M. Corliss, Jr.
(Fax: (562) 308-0021)
With a required copy to:
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
(Fax: (805) 568-1955)
If to the Employee:
With a copy to:
20. GOVERNING LAW. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of California without reference to
principles of conflict of laws.
<PAGE>
21. HEADINGS. The headings of the section contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning
or construction of any provision of this Agreement.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original, and all
of which counterparts taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
Company:
NETGATEWAY
a Nevada corporation
By: /s/ DONALD M. CORLISS, JR.
----------------------------
Name: Donald M. Corliss, Jr.
Title: President
Employee:
/s/ LUIS MARCELO POVOLO
-----------------------
LUIS MARCELO POVOLO
<PAGE>
EXHIBIT 10.37
CONSULTING CONTRACT
This agreement (this "Agreement") is made as of October 14, 1998, by and
between NetGateway, Inc. (hereinafter, "Employer"), and Richard A. Berns
(hereinafter, "Consultant").
RECITALS
A. Employer is engaged in the eCommerce and software business and maintains
its principal place of business at 300 Oceangate, Long Beach, California
90802.
B. Consultant is willing to be contracted by Employer, and Employer is
willing to employ Consultant, on the following terms, covenants and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and promises of the
parties set forth herein, Employer and Consultant covenant and agree as
follows:
SECTION I
NATURE OF AND PLACE OF EMPLOYMENT
Employer hereby engages, retains and hires Consultant as an independent
Consultant at 1705 Capital of Texas Highway, Suite 204, Austin, Texas 78746,
and Consultant accepts and agrees to such engagement, retention and hiring.
Subject to the supervision and pursuant to the orders, advice and direction of
Employer, Consultant shall: (a) communicate with shareholders, potential
broker dealers, institutions and funds for the purpose of disseminating
information concerning Employer and its business operations to such parties
and generally maintaining shareholder awareness of Employer's business
activities, (b) perform such other duties as are customarily performed by a
consultant holding such position in similar businesses or enterprises as that
engaged in by Employer and (c) render such other and further services and
duties as may be required of Consultant from time to time by Employer.
SECTION II
MANNER OF PERFORMANCE OF CONSULTANT'S DUTIES
Consultant hereby agrees that, at all times, he will perform faithfully,
industriously and to the best of his ability, experience and talent, all
duties that may be required of him pursuant to the terms of this Agreement,
to the Company's reasonable satisfaction. Such duties shall be rendered at
Austin, Texas, and at such other place or places as Employer shall require,
or as the interests, needs, business and opportunities of Employer shall
require, dictate or make advisable.
SECTION III
DURATION OF EMPLOYMENT
The term of this Agreement shall be for a period of two (2) years, commencing
on October 14, 1998, and terminating on October 14, 2000, subject to prior
termination as provided by this Agreement.
<PAGE>
SECTION IV
COMPENSATION AND EXPENSES
a. Employer shall pay Consultant, and Consultant agrees to accept from
Employer, in full payment for Consultant's services hereunder, compensation
at the rate of $24,000 per annum, payable in arrears, in monthly
installments of $2,000.
b. Employer shall reimburse Consultant for any and all reasonable necessary,
customary and usual expenses incurred by Consultant while traveling on
behalf of Employer pursuant to Employer's direction under this Agreement.
c. From time to time, Employer may, but shall in no event be required to,
provide bonuses and other incentives to Consultant in connection with any
Shareholder awareness program that is developed by Consultant and reflected
in Employer's stock price.
SECTION V
TERMINATION OF AGREEMENT ON DISCONTINUANCE OF BUSINESS
Notwithstanding anything contained herein to the contrary, in the event that
Employer discontinues operating its business for any reason, this Agreement
shall cease and terminate as of the last day of the month in which Employer
ceases operations, with the same force and effect as if that last day of such
month were originally set forth as the termination date of this Agreement.
In the event of such termination, Employer shall only be obligated to pay
Consultant for fees and expenses earned hereunder by Consultant through the
date of such termination.
SECTION VI
DEVOTION OF TIME TO BUSINESS
a. Consultant shall devote sufficient time, attention, knowledge and effort
to the business and interests of Employer, and Employer shall be entitled to
all benefits, profits and other issues arising from or incident to any and
all work, services and advice of Consultant, and Consultant expressly agrees
that, during the term of this Agreement, Consultant will not be interested,
directly or indirectly, in any form, fashion or manner, as partner, officer,
director, stockholder or employee of Employer, or in any other form or
capacity in any business similar to Employer's business or any allied trade.
b. Notwithstanding anything to the contrary contained in Section VI(a)
hereof, nothing in this Agreement shall be deemed to prevent or limit
Consultant's right to invest in the capital stock or other securities of any
corporation whose stock or securities are publicly owned or are regularly
traded on any public exchange, nor shall anything in this Agreement be deemed
to prevent Consultant from investing in, or limit the Consultant's right to
invest in, real estate.
SECTION VII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
a. Consultant specifically agrees that Consultant will not at any time, in
any fashion, form or manner, either directly or indirectly, divulge, disclose
or communicate to any person, entity, firm or corporation in any manner
whatsoever, any information of any kind, nature or description concerning any
matters affecting or relating to the business of Employer, including, but not
limited to, the names of any of Employer's customers, the prices it obtains
or has obtained or at
2
<PAGE>
which Employer sells or has sold its products, or any other information
concerning the Employer's business, its manner of operation, its plans,
processes or other data of any kind, nature or description whatsoever,
without regard to whether any or all of the foregoing matters or information
would be deemed confidential, material or proprietary. The obligations of
this Section VII(a) shall survive termination of this Agreement.
b. The parties hereto stipulate and agree that, as between them, the
foregoing matters are important, material and confidential and will gravely
affect the effective and successful conduct of the business of Employer and
its goodwill, and that any breach of the terms of this Section VII is a
material breach of this Agreement and may be specifically enforced.
SECTION VIII
CONSULTANT'S COMMITMENTS AS BINDING ON EMPLOYER
Notwithstanding anything contained herein to the contrary, it is expressly
understood and agreed that Consultant shall not have the right to make any
contracts or commitments on Employer's behalf without Employer's written
consent, which consent may be given or withheld in the sole discretion of
Employer.
SECTION IX
ENTIRE AGREEMENT
a. This Agreement contains the sole and entire agreement between the parties
hereto and supersedes any and all other agreements between the parties. The
parties acknowledge and agree that neither of them has made any
representation with respect to the subject matter of this Agreement or any
representations inducing the execution and delivery of this Agreement, except
such representations as are specifically set forth in this Agreement, and
each of the parties acknowledges that such party has relied on such party's
own judgment in entering into the Agreement.
b. The parties further acknowledge that any statements or representations
that may have previously been made by either of them to the other are void
and of no effect and that neither of them has relied thereon in connection
with such party's dealings with the other.
SECTION X
WAIVER OR MODIFICATION OF AGREEMENT
a. A waiver or modification of this Agreement or of any covenant, condition
or other provision of this Agreement shall not be valid unless in writing and
executed by the party to be charged, and evidence of any waiver or
modification shall not be offered or received in evidence in any proceeding,
arbitration or litigation between the parties arising out of or affecting
this Agreement or the rights or obligations of any party under this
Agreement, unless the waiver or modification is in writing, executed by the
party to be charged.
b. The parties further agree that the provisions of this section may not be
waived except as set forth in this Agreement.
3
<PAGE>
SECTION XI
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State of
California, without regard to choice of law principles thereof.
SECTION XIII
ASSIGNMENT OR SURVIVORSHIP OF BENEFITS
This Agreement shall be binding on and inure to the benefit of the respective
parties and their executors, administrators, heirs, personal representatives,
successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
/s/ RICHARD A. BERNS
----------------------------
Richard A. Berns
NETGATEWAY, INC.
By: /s/ KEITH FREADHOFF
-------------------------
Keith Freadhoff
4
<PAGE>
[LETTERHEAD]
December 9, 1998
Mr. Jerry Czuchna
President
Web Walker Media Link
8174 S. Holly, Suite 267
Littleton, Colorado 80122
Dear Jerry,
Thank you for your proposal to develop and implement the Netgateway Cable
Television MSO Affiliate Program. We would like to accept the proposal under
the following terms:
- - Ninety day consulting agreement, commencing December 14, 1998
- - $3,600 per month
- - 5,000 shares restricted 144 rule Netgateway stock
- - Bonus 5,000 shares upon signing a top 5 cable company to the program
Based on our initial conversation and your proposal, we will expect to
receive a completed multimedia presentation and schedule initial MSO meetings
in January.
We look forward to working with you in creating a successful MSO program.
Best Regards,
/s/ Alex Chaffetz
Alex Chaffetz, VP - Business Development
Netgateway, Inc.
/s/ Jerry Czuchna
Web Walker Media Link
<PAGE>
Exhibit 10.39
PROMISSORY NOTE
$50,000.00 March 15, 1999
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to
the order of Joseph Py (the "Holder"), the principal amount of FIFTY THOUSAND
DOLLARS ($50,000.00), without interest, within ten (10) business days of the
closing of the undersigned's bridge financing being underwritten by Cruttendon
Roth, Inc. (the "Maturity Date").
All payments under this Note shall be made in lawful money of the United
States of America and in immediately available funds. This Note may be prepaid
in whole or in part without penalty.
The undersigned waives presentment, notice of dishonor, protest and any
other notice or formality with respect to this Note. The undersigned agrees to
reimburse the Holder on demand for all reasonable costs, expenses and charges
(including reasonable attorneys' fees and charges) in connection with the
enforcement of this Note.
This Note shall be binding on the undersigned and its successors and
assigns and shall inure to the benefit of the Holder and its successors and
assigns.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE
STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered as of the day and year first above written.
NETGATEWAY, INC.,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
------------------------------
Donald M. Corliss, Jr.
President
<PAGE>
Exhibit 10.40
PROMISSORY NOTE
$30,000.00 March 15, 1999
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to
the order of Robert E. Ciri (the "Holder"), the principal amount of THIRTY
THOUSAND DOLLARS ($30,000.00), together with accrued interest, within ten (10)
business days of the closing of the undersigned's bridge financing being
underwritten by Cruttendon Roth, Inc. (the "Maturity Date").
All payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds. This Note may be
prepaid in whole or in part without penalty. Upon the Maturity Date, interest
shall accrue and be payable on this Note in the aggregate amount of $1,000.
The undersigned waives presentment, notice of dishonor, protest and
any other notice or formality with respect to this Note. The undersigned agrees
to reimburse the Holder on demand for all reasonable costs, expenses and charges
(including reasonable attorneys' fees and charges) in connection with the
enforcement of this Note.
This Note shall be binding on the undersigned and its successors and
assigns and shall inure to the benefit of the Holder and its successors and
assigns.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE
STATE OF CALIFORNIA.
IN WITNESS WHEREOF, the undersigned has caused this Note to be duly
executed and delivered as of the day and year first above written.
NETGATEWAY, INC.,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
------------------------------
Donald M. Corliss, Jr.
President
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES TO BE RECEIVED UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH QUALIFICATION AND
REGISTRATION.
COMMON STOCK PURCHASE WARRANT
NOVEMBER 20, 1998
NETGATEWAY, INC., a Nevada corporation (the "COMPANY"), having its
executive offices at 300 Oceangate, Suite 500, Long Beach, California 90802,
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company
SCOTT BEEBE,
- --------------------------------------------------------------------------------
his heirs, successors and assigns ("HOLDER"), hereby is entitled to purchase
from the Company, during the term set forth in Section 1 hereof, up to an
aggregate amount of *50,000* shares (the "EXERCISE QUANTITY") of duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock, par value US$.001 per share, of the Company (the "COMMON STOCK"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity as provided in this Common Stock Purchase Warrant (the "WARRANT"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be ONE AND NO/ONE HUNDREDTHS DOLLARS ($1.00), as adjusted from time to
time pursuant to the terms of this Warrant (the "EXERCISE PRICE").
The term of this Warrant commences as of the date hereof, and shall
expire at 5:00 P.M., Pacific time, on November 20, 2000. In the event that this
Warrant would expire on a day that is not a Business Day (as defined below),
then the term of this Warrant automatically shall be extended to 5:00 P.M.,
Pacific time, on the next succeeding Business Day.
This Warrant may be exercised by the Holder of this Warrant at any time
during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, duly completed and executed for
exercise, together with payment in the aggregate amount equal to the Exercise
Price multiplied by the number of shares of Common Stock being purchased. At
the option of Holder, payment of the Exercise Price may be made either by:
(i) certified check payable to the order of the Company, (ii) surrender of
certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of shares which has an
aggregate Fair Value (as defined below) on the date of exercise equal to the
aggregate Exercise Price for all shares to be purchased pursuant to this Warrant
or (iii) any combination of the foregoing methods. Upon the Company's receipt
of this Warrant, duly completed and signed for exercise, and the requisite
payment, the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Common
Stock purchased. In the event of a partial exercise of this Warrant, the
Company shall issue and deliver to the Holder a new Warrant at the same time
such stock certificates are delivered, which new Warrant shall entitle the
Holder to purchase the balance of the Exercise Quantity not purchased in that
partial exercise and shall otherwise be upon the same terms and provisions as
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
NETGATEWAY, INC.,
a Nevada corporation
Attest:
By: /s/ Hanh M. Ngo By: /s/ Donald M. Corliss, Jr.
------------------------------- -------------------------------
Hanh M. Ngo Donald M. Corliss, Jr.
Secretary President
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES TO BE RECEIVED UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH QUALIFICATION AND
REGISTRATION.
COMMON STOCK PURCHASE WARRANT
NOVEMBER 20, 1998
NETGATEWAY, INC., a Nevada corporation (the "COMPANY"), having its
executive offices at 300 Oceangate, Suite 500, Long Beach, California 90802,
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company
DONALD DANKS,
- --------------------------------------------------------------------------------
his heirs, successors and assigns ("HOLDER"), hereby is entitled to purchase
from the Company, during the term set forth in Section 1 hereof, up to an
aggregate amount of *50,000* shares (the "EXERCISE QUANTITY") of duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock, par value US$.001 per share, of the Company (the "COMMON STOCK"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity as provided in this Common Stock Purchase Warrant (the "WARRANT"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be ONE AND NO/ONE HUNDREDTHS DOLLARS ($1.00), as adjusted from time to
time pursuant to the terms of this Warrant (the "EXERCISE PRICE").
The term of this Warrant commences as of the date hereof, and shall
expire at 5:00 P.M., Pacific time, on November 20, 2000. In the event that this
Warrant would expire on a day that is not a Business Day (as defined below),
then the term of this Warrant automatically shall be extended to 5:00 P.M.,
Pacific time, on the next succeeding Business Day.
This Warrant may be exercised by the Holder of this Warrant at any time
during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, duly completed and executed for
exercise, together with payment in the aggregate amount equal to the Exercise
Price multiplied by the number of shares of Common Stock being purchased. At
the option of Holder, payment of the Exercise Price may be made either by:
(i) certified check payable to the order of the Company, (ii) surrender of
certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of shares which has an
aggregate Fair Value (as defined below) on the date of exercise equal to the
aggregate Exercise Price for all shares to be purchased pursuant to this Warrant
or (iii) any combination of the foregoing methods. Upon the Company's receipt
of this Warrant, duly completed and signed for exercise, and the requisite
payment, the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Common
Stock purchased. In the event of a partial exercise of this Warrant, the
Company shall issue and deliver to the Holder a new Warrant at the same time
such stock certificates are delivered, which new Warrant shall entitle the
Holder to purchase the balance of the Exercise Quantity not purchased in that
partial exercise and shall otherwise be upon the same terms and provisions as
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
NETGATEWAY, INC.,
a Nevada corporation
Attest:
By: /s/ Hanh M. Ngo By: /s/ Donald M. Corliss, Jr.
------------------------------- -------------------------------
Hanh M. Ngo Donald M. Corliss, Jr.
Secretary President
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES TO BE RECEIVED UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH QUALIFICATION AND
REGISTRATION.
COMMON STOCK PURCHASE WARRANT
NOVEMBER 20, 1998
NETGATEWAY, INC., a Nevada corporation (the "COMPANY"), having its
executive offices at 300 Oceangate, Suite 500, Long Beach, California 90802,
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company
KEITH D. FREADHOFF,
- --------------------------------------------------------------------------------
his heirs, successors and assigns ("HOLDER"), hereby is entitled to purchase
from the Company, during the term set forth in Section 1 hereof, up to an
aggregate amount of *50,000* shares (the "EXERCISE QUANTITY") of duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock, par value US$.001 per share, of the Company (the "COMMON STOCK"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity as provided in this Common Stock Purchase Warrant (the "WARRANT"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be ONE AND NO/ONE HUNDREDTHS DOLLARS ($1.00), as adjusted from time to
time pursuant to the terms of this Warrant (the "EXERCISE PRICE").
The term of this Warrant commences as of the date hereof, and shall
expire at 5:00 P.M., Pacific time, on November 20, 2000. In the event that this
Warrant would expire on a day that is not a Business Day (as defined below),
then the term of this Warrant automatically shall be extended to 5:00 P.M.,
Pacific time, on the next succeeding Business Day.
This Warrant may be exercised by the Holder of this Warrant at any time
during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, duly completed and executed for
exercise, together with payment in the aggregate amount equal to the Exercise
Price multiplied by the number of shares of Common Stock being purchased. At
the option of Holder, payment of the Exercise Price may be made either by:
(i) certified check payable to the order of the Company, (ii) surrender of
certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of shares which has an
aggregate Fair Value (as defined below) on the date of exercise equal to the
aggregate Exercise Price for all shares to be purchased pursuant to this Warrant
or (iii) any combination of the foregoing methods. Upon the Company's receipt
of this Warrant, duly completed and signed for exercise, and the requisite
payment, the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Common
Stock purchased. In the event of a partial exercise of this Warrant, the
Company shall issue and deliver to the Holder a new Warrant at the same time
such stock certificates are delivered, which new Warrant shall entitle the
Holder to purchase the balance of the Exercise Quantity not purchased in that
partial exercise and shall otherwise be upon the same terms and provisions as
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
NETGATEWAY, INC.,
a Nevada corporation
Attest:
By: /s/ Hanh M. Ngo By: /s/ Donald M. Corliss, Jr.
------------------------------- -------------------------------
Hanh M. Ngo Donald M. Corliss, Jr.
Secretary President
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES TO BE RECEIVED UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH QUALIFICATION AND
REGISTRATION.
COMMON STOCK PURCHASE WARRANT
NOVEMBER 20, 1998
NETGATEWAY, INC., a Nevada corporation (the "COMPANY"), having its
executive offices at 300 Oceangate, Suite 500, Long Beach, California 90802,
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company
MICHAEL VANDERHOOF,
- --------------------------------------------------------------------------------
his heirs, successors and assigns ("HOLDER"), hereby is entitled to purchase
from the Company, during the term set forth in Section 1 hereof, up to an
aggregate amount of *50,000* shares (the "EXERCISE QUANTITY") of duly
authorized, validly issued, fully paid and non-assessable shares of Common
Stock, par value US$.001 per share, of the Company (the "COMMON STOCK"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity as provided in this Common Stock Purchase Warrant (the "WARRANT"). The
exercise price per share of Common Stock for which this Warrant is exercisable
shall be ONE AND NO/ONE HUNDREDTHS DOLLARS ($1.00), as adjusted from time to
time pursuant to the terms of this Warrant (the "EXERCISE PRICE").
The term of this Warrant commences as of the date hereof, and shall
expire at 5:00 P.M., Pacific time, on November 20, 2000. In the event that this
Warrant would expire on a day that is not a Business Day (as defined below),
then the term of this Warrant automatically shall be extended to 5:00 P.M.,
Pacific time, on the next succeeding Business Day.
This Warrant may be exercised by the Holder of this Warrant at any time
during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by presentation
and surrender of this Warrant to the Company, duly completed and executed for
exercise, together with payment in the aggregate amount equal to the Exercise
Price multiplied by the number of shares of Common Stock being purchased. At
the option of Holder, payment of the Exercise Price may be made either by:
(i) certified check payable to the order of the Company, (ii) surrender of
certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of shares which has an
aggregate Fair Value (as defined below) on the date of exercise equal to the
aggregate Exercise Price for all shares to be purchased pursuant to this Warrant
or (iii) any combination of the foregoing methods. Upon the Company's receipt
of this Warrant, duly completed and signed for exercise, and the requisite
payment, the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Common
Stock purchased. In the event of a partial exercise of this Warrant, the
Company shall issue and deliver to the Holder a new Warrant at the same time
such stock certificates are delivered, which new Warrant shall entitle the
Holder to purchase the balance of the Exercise Quantity not purchased in that
partial exercise and shall otherwise be upon the same terms and provisions as
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
NETGATEWAY, INC.,
a Nevada corporation
Attest:
By: /s/ Hanh M. Ngo By: /s/ Donald M. Corliss, Jr.
------------------------------- -------------------------------
Hanh M. Ngo Donald M. Corliss, Jr.
Secretary President
<PAGE>
OCEANGATE TRUST
THIS OCEANGATE TRUST (the "Trust") is entered as of the 10th day of
December, 1998, by and among the Beneficiaries whose names appear on the
signature page hereof (collectively, "Beneficiaries") and Keith D.
Freadhoff(the "Trustee").
RECITALS
A. Beneficiaries own stock in Netgateway, Inc., a Nevada corporation
(the "Company").
B. Beneficiaries desire to transfer to the Trustee in trust, the
number of shares of stock of Netgateway, Inc. set forth next to their names
on the attached Schedule 1 (the "Shares") to be used by the Trustee in his
sole discretion for the overall benefit of the Company under the terms and
conditions set forth herein.
C. The Shares and any other property now or hereafter added to the
Trust shall be sometimes referred as the "Trust Estate."
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
DEPOSIT AND TRANSFER OF SHARES TO TRUSTEE
Section 1.1 DEPOSIT OF SHARES. Upon execution of this Trust, the
Beneficiaries shall deposit with the Trustee certificates for the Shares
represented on the attached Schedule 1, endorsed in blank or to the Trustee,
or accompanied by such instruments of transfer as will enable such
certificates to be transferred to the name of the Trustee.
Section 1.2 TRANSFER OF SHARES TO TRUSTEE. All certificates for the
Shares delivered to the Trustee shall be surrendered by the Trustee to the
Company and canceled and new share certificates shall be issued in the name
of the Trustee, which reflect the fact that they are issued pursuant to this
Trust.
Section 1.3 SHARE CERTIFICATES. Upon receipt by the Trustee of the
share certificates and transfer of the same into the name of the Trustee, the
Trustee shall hold or transfer the certificates subject to the terms of this
Trust.
Section 1.4 TRANSFER OF SHARES TO SUCCESSOR TRUSTEE. Notwithstanding
any changes in the identity of the Trustee, the certificates for shares
standing in the name of the Trustee may be endorsed and transferred by any
successor Trustee with the same effect as if endorsed and transferred by the
predecessor Trustee.
<PAGE>
Section 1.5 TRANSFER OF SHARES. The Trustee shall have complete
authority to sell, transfer or otherwise dispose of or encumber any of the
Shares deposited pursuant to the provisions of this Trust, pursuant to the
terms set forth herein and shall hold any proceeds in trust pursuant to the
terms of this Trust.
TRUSTEE
Section 2.1 TRUSTEE. The initial Trustee of the trust created hereby
shall be as named above and any successor(s) shall be appointed as
hereinafter provided. In the absence of the removal, resignation,
dissolution, liquidation or winding-up of the Trustee, the Trustee shall
serve for the entire term of the trust created hereby.
Section 2.2 RESIGNATION. Any Trustee may resign by giving thirty (30)
days notice of his resignation to the Company and Beneficiaries. Any
resigning Trustee shall transfer and deliver to its successor the share
certificates then held by it hereunder, together with all books and records
relating to the trust created hereby. Successor Trustees shall be required to
execute a copy of this Trust indicating their consent to act as Trustee in
accordance with the terms hereof.
Section 2.3 SUCCESSOR TRUSTEE. In the event of the resignation,
removal, dissolution, liquidation or winding-up of the Trustee, Scott Beebe
shall serve as successor Trustee. In the event that Scott Beebe shall for any
reason fail to serve or cease to act as successor Trustee the Beneficiaries
shall by majority vote elect one or more successor Trustees, with each
Shareholder having a number of votes in proportion to his respective interest
in the shares transferred by such Shareholder pursuant to this Trust.
Section 2.4 NO COMPENSATION. The Trustee shall serve without
compensation and shall bear sole responsibility for its own expenses,
including without limitation those for attorneys, accountants and other
advisors.
Section 2.5 TRUSTEE RELATIONSHIP WITH COMPANY. Any Trustee, its
employees or agents any any firm or corporation of which it may be a member,
agent or employee and any corporation, trust or association of which it may
be a trustee, stockholder, director, officer, agent or employee may contract
with or be or become pecuniarly interested, directly or indirectly, in any
matter or transaction to which the Company or any subsidiary or controlled or
affiliate corporation may be a party or in which it may be concerned, as
fully and freely as though such Trustee were not a Trustee hereunder. The
Trustee, its employees or agents, may act as directors or officers of the
Company or of any such subsidiary or controlled or affiliated corporation.
VOTING AND ACTION BY TRUSTEE
Section 3.1 VOTING OF SHARES. Subject to the terms and conditions of
this Trust, so long as the Trustee shall hold shares deposited or acquired
pursuant to the provisions of this Trust, it shall possess and shall be
entitled to exercise in person or by its nominees, agents, attorneys-in-fact
or proxies, the right to vote, assent or consent with respect to such shares
to take
<PAGE>
part in and consent to any corporate or shareholders' action of any kind
whatsoever, and to receive dividends and distributions on said such shares.
Section 3.2 VOTING OF BENEFICIARIES. Any actions or consents required
or made by the Beneficiaries hereof, shall be made by a majority in interest
of the Beneficiaries. Beneficiaries shall be entitled to vote based on their
Percentage Interests in the Trust Estate.
DISTRIBUTIONS
Section 4.1 GENERAL. During the term of this Trust, the Trustee shall
hold, administer and distribute the Trust Estate as follows:
a. After paying any ongoing expenses of the Trust, income of the Trust
Estate shall be accumulated and added to principal.
b. The Trustee shall be authorized in the absolute discretion of the
Trustee to apply or distribute principal or income of the Trust Estate to
accomplish the purposes for which this Trust has been established and pursuant
to the terms hereof.
TRUSTEE POWERS
To carry out the purposes of any Trust created pursuant to the terms of
this Instrument, and subject to any limitations stated elsewhere in this
Instrument, the Trustee is vested with the following powers, in addition to
any now or hereafter conferred by the law:
Section 5.1 GENERAL POWERS. The Trustee is expressly authorized to do
all acts, institute all proceedings, and exercise all the rights, powers and
privileges with respect to the Trust Estate which an absolute owner of the
same property would be entitled to do, subject always to the discharge of
the Trustee's fiduciary obligation. Without limiting the generality of the
foregoing, the Trustee shall have the following powers:
a. To exercise with respect to securities held as part of the Trust
Estate all the rights, powers and privileges of an owner, including, but not
limited to, the power to vote, give proxies and to pay assessments and other
sums deemed by the Trustee necessary for the protection of the Trust Estate;
to participate in voting trusts, pooling agreements, foreclosures,
reorganizations, consolidations, mergers and liquidations, and in connection
therewith to deposit securities with, and transfer title to, any protective
or other committee upon such terms as the Trustee may deem advisable, to
exercise or sell stock subscriptions or conversion rights; and to accept and
retain as an investment, any securities or other property received as a
result of the exercise of any of the foregoing powers.
b. To sell for cash or on deferred payments, at public or private sale,
either with or without security, to exchange and to convey any property of
the Trust Estate without any other approvals.
<PAGE>
c. To abandon any asset of the Trust Estate or interest therein which
the Trustee determines to be in the best interest of the Trust Estate and the
Beneficiaries.
d. To grant an option, involving disposition of any asset then being
held in the Trust Estate and to take an option for the acquisition of any
asset held as a part of the Trust Estate.
e. To lease any real or personal property constituting a part of the
Trust Estate for any purpose and for terms without or extending beyond the
duration of the Trust.
f. To make ordinary and extraordinary repairs and alterations to any
real or personal property constituting a part of the Trust Estate.
g. To commence or defend at the expense of the Trust Estate any
litigation deemed advisable by the Trustee in order to protect the Trust
Estate or any portion thereof.
h. To pay all taxes, assessments, compensation of the Trustee and other
expenses incurred in the collection, care, administration and protection of
the Trust Estate.
i. To take any action and to make any election, in the Trustee's
discretion, in order to minimize the tax liabilities of this trust and their
beneficiaries. The Trustee shall allocate the benefits from this action or
election among the various beneficiaries. The Trustee shall make adjustments
in the rights of any beneficiaries, or between the income and principal
accounts, to compensate for the consequences of any tax election, investment,
or administrative decisions that the Trustee believes has had to the effect
of directly or indirectly preferring one beneficiary or group of
beneficiaries over others.
i. To borrow money from any person, firm or corporation for any Trust
purpose, upon such terms and conditions as the Trustee may deem proper, to
obligate the Trust Estate for repayment thereof, to encumber any portion of
the Trust Estate by mortgage, deed of trust, pledge or otherwise and to buy
and sell stock in a margin account.
j. To collect or take any action to collect on or with respect to any
property of the Trust Estate.
k. To procure and carry at the expense of the Trust, insurance of such
kind and in such form and amount as the Trustee deems advisable to protect
the Trustee, the Trust and the Trust Estate against any hazard.
l. To guarantee any debts or obligations of Trustor or beneficiaries of
this Trust and to pledge, encumber or hypothecate by mortgage, trust deed,
security agreement or otherwise, any trust asset or assets as security or
collateral therefor.
The enumeration of certain powers in this Instrument shall not limit the
general or implied powers of the Trustee; the Trustee shall have all
additional powers that may be necessary to enable the Trustee to properly
administer the Trust Estate.
<PAGE>
Section 5.2 INVESTMENT. The Trustee is authorized expressly to invest
and reinvest in every kind of property, real, personal and mixed, and every
kind of investment, specifically including, but not limited to, corporate
obligations and stocks, savings accounts and certificates of deposit with
federally insured commercial banks and/or savings and loans associations.
Section 5.3 BUSINESSES. The Trustee is expressly authorized to hold
and retain any and all properties and to continue to operate, to sell, or to
liquidate, at the risk of the Trust Estate and not the Trustee, any business,
whether organized as a sole proprietorship, partnership or cooperation, that
the Trustee receives hereunder or is subsequently added to the Trust Estate.
The Trustee may hold and retain any such property and continue to operate any
such business as long as the Trustee, in the exercise of good faith and of
reasonable prudence, discretion and intelligence, but without being required
to take into consideration diversification of trust investments, considers
such action to be in the best interests of the Trust Estate and the
Beneficiaries.
Section 5.4 POWER TO COMPROMISE OR ADJUST. The Trustee may, at any
time in connection with the management of the Trust Estate or the collection
of any monies due or payable to a Trust hereunder, compromise any claims
existing in favor of or against the Trust; enforce any deed of trust,
mortgage or similar encumbrance and purchase at any sale thereunder any
property subject thereto; extend, replace, renew, or forgive, in whole or in
part, any note or other obligation held as a part of the Trust Estate; or
loan or advance the Trustee's own funds to the Trust for any Trust purpose
upon the security of the Trust principal involved, said loans shall bear
interest at the then current rate from the date of advancement until repaid.
Any certificate or security or any evidence in indebtedness or ownership of
property may be registered or taken and held in the name of the Trustee, in
the name of the nominee or nominees of the Trustee or unregistered in a
condition where ownership will pass by delivery.
Section 5.5 EMPLOYMENT OF AGENTS. The Trustee may employ and
compensate out of the Trust Estate accountants, brokers, attorneys,
investment advisers, custodians and others whose services are in the
Trustee's discretion necessary or convenient to the administration of any
Trust created herein.
Section 5.6 SEGREGATION AND DISTRIBUTION. There need be no physical
segregation or division of the various Trusts, except as segregation or
division may be required by the termination of any of the Trusts, but the
Trustee shall keep separate accounts for the different undivided interests.
Upon any distribution of a Trust, in whole or in part, the Trustee may
assign, transfer or deliver in kind to the Beneficiary then entitled thereto,
any part of the Trust Estate or an undivided interest in the Trust Estate, or
any portion thereof, at such valuation as the Trustee may establish as the
then fair market value, or the Trustee may within a reasonable time convert
the Trust Estate, or any portion thereof, into cash, distributing the net
proceeds to such Beneficiary, all at the absolute discretion of the Trustee.
Section 5.7 PRINCIPAL AND INCOME. Unless otherwise specifically
provided herein, the Trustee shall have absolute discretion in determining
what is principal or income and what shall be charged or credited to either,
and the judgement of the Trustee shall bind everyone beneficially interested
hereunder; provided, however, that oil and gas royalties, bonuses, production
payments or
<PAGE>
other proceeds from the development or production of wasting assets held in
trust shall constitute income rather than principal. The Trustee shall not be
required to establish a reserve for depreciation or to make charges against
income therefrom, but may do so if the Trustee in the Trustee's discretion so
determines, such reserve and charges to be established on such assumptions
and in such amounts as the Trustee shall determine appropriate. No inference
of imprudence or partiality shall arise from the fact that the Trustee, in
exercising the discretion conferred on the Trustee by this Paragraph G, shall
have allocated a receipt or expenditure in a manner contrary to any provision
of the California Revised Uniform Principal and Income Act. Except insofar as
the Trustee shall exercise the discretion conferred on the Trustee by this
Paragraph G and except as otherwise provided herein, matters relating to the
allocation of principal and income shall be governed by the provisions of the
California Revised Uniform Principal and Income Act, as such may from time to
time exist.
Section 5.8 TRUSTEE'S DISCRETION. Unless specifically limited, all
discretions conferred upon the Trustee shall be absolute, and the Trustee's
exercise shall be conclusive on all persons interested in the Trusts. With
respect to the rights of the Trustee to distribute income and/or principal of
any Trust, not otherwise required to be distributed, to or for the use and
benefit of any Beneficiary of such Trust, the Trustee deems appropriate, any
other income and the financial resources of such Beneficiary, so far as known
to the Trustee.
Section 5.9 CO-TRUSTEES. At such times as two or more persons are
acting as Co-Trustees hereunder, each Co-Trustee shall have the power to act
solely in any and all transactions involving the Trust Estate and any and all
powers conferred on the Trustees jointly are also conferred on each
Co-Trustee individually, without the contract, deed, lease, promissory note,
deed of trust or any other instrument of any nature whatsoever, in any way
connected with this Trust or on behalf of this Trust, need only be signed by
any one of said Co-Trustees.
BOOKS AND RECORDS
Section 6.1 RECORD OF SHARES. The Trustee shall maintain a record of
all share certificates of the Company which are transferred to the Trustee to
be held pursuant to this Trust, indicating the name in which the stock was
held, the date of issuance of the stock, the class and series of the stock,
the number of shares, and the numbers of the certificates representing those
shares. The Trustee shall also maintain a record of the date on which any
such share certificates were received by the Trustee, and the date on which
the same were delivered to the Company for transfer to the Trustee and shall
obtain a receipt for any such certificate so delivered. The Trustee shall
receive and hold the new share certificates issued by the Company in the name
of the Trustee and shall maintain a record indicating the date of issuance of
such certificates, the date of receipt of such certificate, and the place in
which such certificates are held.
Section 6.2 BOOK OF ACCOUNTS. The Trustee or its agent shall maintain
a book of accounts showing all sums of money received by the Trustee, all
disbursements made by the Trustee and all obligations incurred by the Trustee
which are unpaid. Information concerning the above accounts shall be posted
at least monthly.
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Section 6.3 INSPECTION OF RECORDS. The books and records of the trust
created hereby shall be open to inspection and copying, either in person or
by agent, by any of the parties to this Trust or their successors at any
reasonable time at the office of the Trustee.
TERM OF TRUST
Section 7.1 REVOCABILITY OF TRUST. The trust created by this Trust is
hereby expressly declared to be revocable, but only by the vote of a majority
in interest of the Beneficiaries. For purposes of determining interests of
Beneficiaries, each Beneficiary shall have an interest in the Trust Estate
based on the pro rata contribution of such Beneficiary to the Trust.
Section 7.2 TERMINATION. This Trust and the trust created hereby shall
terminate on the earlier of (a) ten (10) years after the date hereof without
notice by or to, or action on the part of, the Trustee or any other party
hereto, or (b) the sale of the shares and the collection of the cash proceeds
therefrom. This Trust may be terminated at an earlier date by one or more
instruments in writing executed by the Trustee and the vote or written
consent of the holders of a majority of beneficial interests in the trust
created hereby.
Section 7.3 RETURN OF SHARE CERTIFICATES AFTER TERMINATION. Within
thirty (30) days after the termination of this Trust, the Trustee shall
deliver to the Beneficiaries the property then held pursuant to this Trust.
Section 7.4 FINAL ACCOUNTING. Within sixty (60) days after termination
of the trust created hereby, the Trustee shall render a final accounting to
the Certificate Holders, and the Company and shall distribute any funds or
other assets held by the Trustee to the parties entitled thereto.
GENERAL PROVISIONS
The following general provisions shall apply to the administration of
any and all Trusts created pursuant to the provisions of this Instrument.
Section 8.1 BOND. No bond shall be required of any person acting as
Trustee hereunder.
Section 8.2 PROFITS AND LOSSES. The profits and losses arising from
any activity of the Trustee, as Trustee of the Trust created hereunder, shall
inure to the benefit of or be charged against the Trust and not the Trustee.
Section 8.3 NOTICE OF CHANGED EVENTS. Unless the Trustee receives from
some person interested in a Trust created hereunder, written notice of any
birth, death or other event upon which the right to receive income or
principal from such Trust may depend, the Trustee shall incur no liability
for disbursements made in good faith to persons whose interests are affected
by such event.
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Section 8.4 CERTIFICATE OF TRUST. Any transfer agent or other person
dealing with the Trust (hereinafter referred to as "third party") shall be
entitled to rely upon a copy of a Certificate of Trust certified by the
Trustee to be true, or any amendment thereto setting forth the powers of the
Trust and the general provisions relating to the administration of the Trust.
Such third party shall incur no liability to the Trust or any Beneficiary
hereunder, for acting upon an order or request of the Trustee made pursuant
to the terms hereof set forth in each Certificate of Trust or any amendment
thereto, as the case may be.
Section 8.5 AMENDMENT. The Beneficiaries shall have the power by
majority act (i.e., the Beneficiaries who are in the aggregate are entitled
to receive more then fifty percent (50%) of the respective Trust's Net
Income) to transfer the administration of such Trusts to a new non-corporate
Trustee. Such substitution of a new Trustee shall be made by said
Beneficiaries by giving a written notice to the then acting Trustee which
indicates the desire of said Beneficiaries to effect a substitution in the
office of Trustee and designates the new Trustee selected.
Section 8.6 SUCCESSOR TRUSTEE. Any successor of a Trustee hereunder,
whether resulting by consolidation, merger, transfer of trust business or by
death, resignation, refusal or inability to act, or by other reason, shall
succeed as Trustee with like effect as though originally named as such.
Section 8.7 TRANSFER OF TRUSTEE POWERS. All authorities and powers
herein conferred upon a Trustee, shall pass to any and all subsequent
Trustees.
Section 8.8 LIABILITY AMONG TRUSTEES. No Trustee shall be liable or
responsible for any act, omission or default of any other Trustee, provided
that he had no knowledge of such act, omissions or default and no knowledge
of facts which might reasonably be expected to put him on notice of it.
Section 8.9 NO DUTY TO EXAMINE BOOKS. No succeeding Trustee shall be
under any duty to examine the books and records of a predecessor Trustee and
may accept as the full Trust Estate any properties which may be turned over
to him.
Section 8.10 ACCOUNTING BY TRUSTEE. The Trustee may at any time render
an account of his actions hereunder to the then living Beneficiary of a
Trust, the personal representative of any deceased Beneficiary of a Trust who
is entitled to receive any income during the period accounted for, or the
persons to whom principal of a Trust would be paid over and distributed were
such Trust then to terminate (or if such Trust has terminated, then to the
persons to whom it is to be paid over and distributed). If such accounting is
approved by the above, specified persons, such accounting shall be final,
binding and conclusive upon all persons who may then or thereafter have any
interest in the Trust. The Trustee may also at any time render a judicial
accounting of his actions hereunder. Upon the termination or resignation of a
Trustee shall render the accounting described in this Paragraph 7.11. If no
objection to such accounting is made by an interested party herein within
ninety (90) days after its receipt, it should be final, binding and
conclusive on all interested parties herein.
Section 8.11 INCAPACITY OF A TRUSTEE. If an individual Trustee is
unable to participate in Trust activities because of illness or disability,
the remaining Trustee may, during any such
<PAGE>
incapacity, make any and all decisions regarding the Trust Estate on behalf
of such incapacitated Trustee. In determining the disability of an individual
Trustee, the remaining Trustee may rely on a certificate or other written
statement from a physician who has examined the individual Trustee. In the
absence thereof, the remaining Trustee may petition a court of competent
jurisdiction for authority to proceed on behalf of the incapacitated Trustee
under the authority of this Paragraph 7.12.
Section 8.12 DELEGATION BY CO-TRUSTEE. So long as any person shall
serve as a Co-Trustee of any Trust created hereunder, such person shall have
the power, from time to time, to delegate to the remaining Co-Trustee
hereunder, all or any of his powers as Co-Trustee during temporary vacation
periods or other temporary absences. The power of delegation shall be
exercised by delivery by such Co-Trustee to the remaining Co-Trustee of
written notice specifying the powers delegated; such delegation shall
terminate upon delivery by such Co-Trustee to the remaining Co-Trustee of
written notice of termination. Such remaining Co-Trustee shall incur no
liability to any Beneficiary of the Trust Estate with respect to
administration of the Trust Estate during the period of any such delegation.
MISCELLANEOUS
Section 9.1 APPLICABLE LAW. This Trust shall be construed under and
enforced in accordance with the laws of the State of California, without
regard to the conflicts of law provisions thereof.
Section 9.2 ATTORNEYS' FEES. In the event suit is brought by any party
for enforcement of this Trust, each prevailing party shall recover, in
addition to such other relief as may be granted, reasonable attorneys' fees
and experts' fees and costs incurred in bringing such suit and/or in
enforcing any judgment granted them.
Section 9.3 BINDING EFFECT. This Trust shall inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns.
Section 9.4 COUNTERPARTS. This Trust may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
Section 9.5 DESCRIPTIVE HEADLINES. Section headings are included herein
for convenience only and shall not be considered in interpreting this Trust.
Section 9.6 ENTIRE AGREEMENT. This Trust and the other documents and
instruments referred to herein contain the entire agreement, with respect to
the subject matter hereof, between the parties, and supercede all prior
agreements or understandings, oral or written, not contained herein or
therein.
Section 9.7 SEVERABILITY. Should any part, term or provision of this
Trust be declared invalid, void or unenforceable, it is the express intent of
the parties that all remaining parts, terms
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and provisions hereof shall remain in full force and effect and shall in no
way be invalidated, impaired or affected thereby.
Section 9.8 NO THIRD PARTY RIGHTS. Nothing in this Trust, express or
implied, is intended to confer on nay person other than the parties or their
respective successors and permitted assigns any rights, remedies, obligations
or liabilities under or by reason of this Trust.
Section 9.9 WAIVER OF DEFAULT. Any waiver by either party of a breach
of any term, provision or condition of this Trust shall not operate or be
construed as a waiver of any subsequent breach of the same or any other term,
provision or condition of this Trust. No waiver of any term, provision or
condition of this Trust shall be valid unless in writing and signed by the
party agreeing to such waiver.
Section 9.10 DEFINITIONS. Except as specifically provided herein the
use of the words Trustee, Beneficiaries and similar words for the purpose of
this Trust shall be deemed to include their successors, heirs,
administrators, executors, assigns and other persons standing in the place of
the party referred to whenever appropriate. The term Trustee as used in this
Trust shall apply to the Trustee named in this Trust and to any additional
Trustee appointed and to any successors. Pronouns of one gender shall be
deemed to refer to other genders and the singular shall refer to the plural
and the plural shall refer to the singular when appropriate. No inference
shall be drawn from the use of one gender or the singular or plural other
than as indicated above.
Section 9.11 NOTICE TO TRUSTEE. Any notice to be given to the Trustee
hereunder shall be sufficiently given if mailed to Trustee at 300 Oceangate,
Suite 500, Long Beach, California 90802, or at such other address as the
Trustee may from time to time designate by written notice given to the
Certificate Holders.
Section 9.12 NOTICE TO BENEFICIARIES. Any notice to be given to any
Shareholder shall be sufficiently given if mailed by a nationally recognized
overnight courier, postage prepaid, to the Shareholder at his last known
address. Such notice shall for all purposes be deemed to have been given on
the first business day after mailing thereof.
Section 9.13 AMENDMENT OF TRUST. If at any time the Trustee deems it
advisable to amend this Trust, it shall submit such proposed amendment to the
Beneficiaries for their approval at a special meeting of such Beneficiaries
which shall be called for that purpose. Notice of the time and place of such
meeting shall be given in the manner provided in the California Corporations
Code for notice of shareholders meetings, and shall contain a copy of the
proposed amendment. If, at such meeting or any adjournment thereof, the
proposed amendment shall be approved by the affirmative vote of a majority of
the Beneficiaries, the proposed amendment so approved shall become a part of
this Trust as if originally incorporated herein.
Section 9.14 SPENDTHRIFT. No interest of any Beneficiary in any Trust
created pursuant to any provision hereof, nor any part of such interest,
shall be anticipated, assigned, encumbered or by other means transferred or
be subject to any creditor's claim, liable to attachment or any other legal
process prior to its actual receipt by the Beneficiary thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Trust to be
duly executed as of the date first above written.
BENEFICIARIES:
By: /s/ Keith D. Freadhoff
-------------------------
KEITH D. FREADHOFF
By: /s/ R. Scott Beebe
-------------------------
SCOTT BEEBE
By: /s/ Donald D. Danks
--------------------------
DONALD D. DANKS
By: /s/ Michael Vanderhoff
-------------------------
MICHAEL VANDERHOFF
TRUSTEE:
/s/ Keith D. Freadhoff
------------------------------
KEITH D. FREADHOFF
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SCHEDULE I
CONTRIBUTION OF NETGATEWAY SHARES
Keith D. Freadhoff 450,000
Scott Beebe 100,000
Donald D. Danks 100,000
Michael Vanderhoff 100,000
<PAGE>
OCEANGATE TRUST NO.
THIS OCEANGATE TRUST No. (the "Trust") is established this 12th day
of December, 1998, and entered into by and between Keith D. Freadhoff, the
Trustee of the Oceangate Trust ("Trustor") and Keith D. Freadhoff ("Trustee")
for the benefit of the Beneficiary whose name appears on the attached
Exhibit A ("Beneficiary").
RECITALS
A. Beneficiary has been given the opportunity to purchase stock in
Netgateway, Inc., a Nevada corporation (the "Company"), subject to certain
terms and conditions to which Beneficiary has agreed.
B. One of the terms under which Beneficiary is to be allowed to
purchase stock requires that such stock be purchased under and through a
trust in order to provide a mechanism to assure that the contingencies of the
purchase are satisfied.
C. The Shares (as described below) and any other property now or
hereafter added to the Trust shall be sometimes referred as the "Trust
Estate."
TRUST TERMS
1. STOCK PURCHASE
Section 1.1 STOCK PURCHASE. Upon execution of this Trust, the Trustee
shall purchase the number of shares set forth on the attached Exhibit A (the
"Shares") for the consideration and upon the terms set forth in this
Agreement and on the attached Exhibit A, or as mutually agreed between the
parties.
Section 1.2 DEPOSIT OF CONSENT. The Beneficiary shall deposit with the
Trustee its consent to the purchase by the Trustee of the Shares.
Section 1.3 TRANSFER OF SHARES TO SUCCESSOR TRUSTEE. Notwithstanding
any changes in the identity of the Trustee, the certificates for shares
standing in the name of the Trustee may be endorsed and transferred by any
successor Trustee with the same effect as if endorsed and transferred by the
predecessor Trustee.
Section 1.4 TRANSFER OF SHARES. The Trustee shall have complete
authority to sell, transfer or otherwise dispose of or encumber any of the
Shares deposited pursuant to the provisions of this Trust, pursuant to the
terms set forth herein and shall hold any proceeds derived from such sale in
trust pursuant to the terms of this Trust.
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2. TRUSTEE
Section 2.1 TRUSTEE. The initial Trustee of the trust created hereby
shall be as named above and any successor(s) shall be appointed as
hereinafter provided. In the absence of the removal, resignation,
dissolution, liquidation or winding-up of the Trustee, the Trustee shall
serve for the entire term of the trust created hereby.
Section 2.2 RESIGNATION. Any Trustee may resign by giving thirty (30)
days notice of his resignation to the Company and the Beneficiaries. Any
resigning Trustee shall transfer and deliver to its successor the share
certificates then held by it hereunder, together with all books and records
relating to the trust created hereby. Successor Trustees shall be required to
execute a copy of this Trust indicating their consent to act as Trustee in
accordance with the terms hereof.
Section 2.3 SUCCESSOR TRUSTEE. In the event of the resignation,
removal, dissolution, liquidation or winding-up of the Trustee, Scott Beebe
shall serve as successor Trustee. In the event that Scott Beebe shall for any
reason fail to serve or cease to act as successor Trustee prior Trustee shall
appoint one or more successor Trustees. Such appointment may be made by a
written designation made by the Trustee and communicated to the Beneficiary.
In the event that the initial Trustee does not designate a successor Trustee,
and Scott Beebe is unable to serve as successor Trustee, Scott Beebe may
designate a successor Trustee. In the event that none of the mechanisms for
designating a successor Trustee are effective, then a successor Trustee can be
designated by the Trustor of this Trust.
Section 2.4 NO COMPENSATION. The Trustee shall serve without
compensation and shall bear sole responsibility for its own expenses,
including without limitation those for attorneys, accountants and other
advisors.
Section 2.5 TRUSTEE RELATIONSHIP WITH COMPANY. Any Trustee, its
employees or agents and any firm or corporation of which it may be a member,
agent or employee and any corporation, trust or association of which it may
be a trustee, stockholder, director, officer, agent or employee may contract
with or be or become pecuniarily interested, directly or indirectly, in any
matter or transaction to which the Company or any subsidiary or controlled or
affiliate corporation may be a party or in which it may be concerned, as
fully and freely as though such Trustee were not a Trustee hereunder. The
Trustee, its employees or agents, may act as directors or officers of the
Company or of any such subsidiary or controlled or affiliated corporation.
3. VOTING AND ACTION BY TRUSTEE
Section 3.1 VOTING OF SHARES. Subject to the terms and conditions of
this Trust, so long as the Trustee shall hold shares deposited or acquired
pursuant to the provisions of this Trust and so long as the conditions set
forth herein have not failed, the Beneficiary shall possess and shall be
entitled to exercise in person or by its nominees, agents, attorneys-in-fact
or proxies, the right to vote, assent or consent with respect to such shares
to take part in and consent to any
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corporate or shareholders' action of any kind whatsoever, and to receive
dividends and distributions on said such shares. In the event that the
conditions set forth in this Trust have failed, the voting rights with
respect to any shares held in the Trust shall revert to the Trustee.
4. DISTRIBUTIONS
Section 4.1 GENERAL. During the term of this Trust, the Trustee shall
hold, administer and distribute the Trust Estate as follows:
a. After paying any ongoing expenses of the Trust, income of the
Trust Estate shall be accumulated and added to principal.
b. Portions of the Trust Estate shall vest in the Beneficiary in
equal installments upon the anniversaries occurring January 1, 2000, 2001,
and 2002, provided that the Beneficiary has not voluntarily left the
employment of the Netgateway, Inc. during the year prior to such anniversary
or been terminated for cause (pursuant to Beneficiary's employment
agreement). Accelerated vesting shall occur in the event of a change of
control as defined in Beneficiary's employment agreement. The passage of time
provided for in this paragraph and the continued employment subject to the
provisions relating to acceleration set forth in Beneficiary's employment
agreement shall be sometimes referred to herein as the "conditions."
c. Upon the vesting of the shares as provided in subparagraph b.
above, such vested shares shall become eligible for distribution to the
Beneficiary, upon Beneficiary's filing of a written Beneficiary's notice that
all conditions of purchase have been met, notification that Beneficiary
desires to have such shares distributed to Beneficiary free of Trust, and
proof that any obligations relating to the purchase of the shares have been
satisfied.
5. TRUSTEE POWERS
To carry out the purposes of any Trust created pursuant to the terms of
this Instrument, and subject to any limitations stated elsewhere in this
Instrument, the Trustee is vested with the following powers, in addition to
any now or hereafter conferred by law:
Section 5.1 GENERAL POWERS. The Trustee is expressly authorized to do
all acts, institute all proceedings, and exercise all rights, powers and
privileges with respect to the Trust Estate which an absolute owner of the
same property would be entitled to do, subject always to the discharge of the
Trustee's fiduciary obligation. Without limiting the generality of the
foregoing, the Trustee shall have the following powers:
a. To exercise with respect to securities held as part of the Trust
Estate all the rights, powers and privileges of an owner, including, but not
limited to and subject to any provisions to the contrary set forth in this
Trust, the power to vote, give proxies and to pay assessments and other sums
deemed by the Trustee necessary for the protection of the Trust Estate; to
participate in voting, trusts, pooling agreements, foreclosures,
reorganizations, consolidations, mergers and liquidations, and in connection
therewith to deposit securities with, and transfer title to, any protective
or other committee upon such terms as the Trustee may deem advisable; to
exercise or sell stock
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subscriptions or conversion rights; and to accept and retain as an investment,
any securities or other property received as a result of the exercise of any
of the foregoing powers.
b. To sell for cash or on deferred payments, at public or private
sale, either with or without security, to exchange and to convey any property
of the Trust Estate without any other approvals.
c. To abandon any asset of the Trust Estate or interest therein which
the Trustee determines to be in the best interest of the Trust Estate and the
Beneficiaries.
d. To grant an option, involving disposition of any asset then being
held in the Trust Estate and to take an option for the acquisition of any
asset held as a part of the Trust Estate.
e. To lease any real or personal property constituting a part of the
Trust Estate for any purpose and for terms without or extending beyond the
duration of the Trust.
f. To make ordinary and extraordinary repairs and alterations to any
real or personal property constituting a part of the Trust Estate.
g. To commence or defend at the expense of the Trust Estate any
litigation deemed advisable by the Trustee in order to protect the Trust
Estate or any portion thereof.
h. To pay all taxes, assessments, compensation of the Trustee and
other expenses incurred in the collection, care, administration and
protection of the Trust Estate.
i. To take any action and to make any election, in the Trustee's
discretion, in order to minimize the tax liabilities of this trust and their
beneficiaries. The Trust shall allocate the benefits from this action or
election among the various beneficiaries. The Trustee shall make adjustments
in the rights of any beneficiaries, or between the income and principal
accounts, to compensate for the consequences of any tax election, investment,
or administrative decisions that the Trustee believes has had to the effect
of directly or indirectly preferring one beneficiary or group of
beneficiaries over others.
i. To borrow money from any person, firm or corporation for any
Trust purpose, upon such terms and conditions as the Trustee may deem proper,
to obligate the Trust Estate for repayment thereof, to encumber any portion
of the Trust Estate by mortgage, deed of trust, pledge or otherwise and to buy
and sell stock in a margin account.
j. To collect or take any action to collect on or with respect to any
property of the Trust Estate.
k. To procure and carry at the expense of the Trust, insurance of
such kind and in such form and amount as the Trustee deems advisable to
protect the Trustee, the Trust and the Trust Estate against any hazard.
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l. To guarantee any debts or obligations of Trustor or Beneficiary of
this Trust and to pledge, encumber or hypothecate by mortgage, trust deed,
security agreement or otherwise, any trust asset or assets as security or
collateral therefor, and loan money to Trust Property if adequately secured,
including loans to the Beneficiary, the deemed appropriate by the Trustee.
m. To make loans or advances to the Beneficiary upon whatever terms
the Trustee deems appropriate and consistent with the purpose and intent of the
Trust.
The enumeration of certain powers in this Instrument shall not limit the general
or implied powers of the Trustee; the Trustee shall have all additional powers
that may be necessary to enable the Trustee to properly administer the Trust
Estate.
Section 5.2 INVESTMENT. The Trustee is authorized expressly to invest and
reinvest in every kind of property, real, personal and mixed, and every kind of
investment, specifically including, but not limited to, corporate obligations
and stocks, savings accounts and certificates of deposit with federally insured
commercial banks and/or savings and loans associations.
Section 5.3 BUSINESSES. The Trustee is expressly authorized to hold and
retain any and all properties and to continue to operate, to sell, or to
liquidate, at the risk of the Trust Estate and not the Trustee, any business,
whether organized as a sole proprietorship, partnership or cooperation, that the
Trustee receives hereunder or is subsequently added to the Trust Estate. The
Trustee may hold and retain any such property and continue to operate any such
business as long as the Trustee, in the exercise of good faith and of reasonable
prudence, discretion and intelligence, but without being required to take into
consideration diversification of trust investments, considers such action to be
in the best interests of the Trust Estate and the Beneficiaries.
Section 5.4 POWER TO COMPROMISE OR ADJUST. The Trustee may, at any time
in connection with the management of the Trust Estate or the collection of any
monies due or payable to a Trust hereunder, compromise any claims existing in
favor of or against the Trust; enforce any deed of trust, mortgage or similar
encumbrance and purchase at any sale thereunder any property subject thereto;
extend, replace, renew, or forgive, in whole or in part, any note or other
obligation held as a part of the Trust Estate; or loan or advance the Trustee's
own funds to the Trust for any Trust purpose upon the security of the Trust
principal involved, said loans shall bear interest at the then current rate from
the date of advancement until repaid. Any certificate or security or any
evidence in indebtedness or ownership of property may be registered or taken and
held in the name of the Trustee, in the name of the nominee of nominees of the
Trustee or unregistered in a condition where ownership will pass by delivery.
Section 5.5 EMPLOYMENT OF AGENTS. The Trustee may employ and compensate
out of the Trust Estate accountants, brokers, attorneys, investment advisers,
custodians and others whose services are in the Trustee's discretion necessary
or convenient to the administration of any Trust created herein.
Section 5.6 SEGREGATION AND DISTRIBUTION. There need be no physical
segregation or division of the various Trusts, except as segregation or division
may be required by the termination of any of the Trusts, but the Trustee shall
keep separate accounts for the different undivided
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interests. Upon any distribution of a Trust, in whole or in part, the Trustee
may assign, transfer or deliver in kind to the Beneficiary then entitled
thereto, any part of the Trust Estate or an undivided interest in the Trust
Estate, or any portion thereof, at such valuation as the Trustee may establish
as the then fair market value, or the Trustee may within a reasonable time
convert the Trust Estate, or any portion thereof, into cash, distributing the
net proceeds to such Beneficiary, all in the absolute discretion of the Trustee.
Section 5.7 PRINCIPAL AND INCOME. Unless otherwise specifically provided
herein, the Trustee shall have absolute discretion in determining what is
principal or income and what shall be charged or credited to either, and the
judgement of the Trustee shall bind everyone beneficially interested hereunder;
provided, however, that oil and gas royalties, bonuses, production payments or
other proceeds from the development or production of wasting assets held in
trust shall constitute income rather than principal. The Trustee shall not be
required to establish a reserve for depreciation or to make charges against
income therefrom, but may do so if the Trustee in the Trustee's discretion so
determines, such reserve and charges to be established on such assumptions and
in such amounts as the Trustee shall determine appropriate. No inference of
imprudence or partiality shall arise from the fact that the Trustee, in
exercising the discretions conferred on the Trustee by this Paragraph G, shall
have allocated a receipt or expenditure in a manner contrary to any provision of
the California Revised Uniform Principal and Income Act. Except insofar as the
Trustee shall exercise the discretion conferred on the Trustee by this Paragraph
G and except as otherwise provided herein, matters relating to the allocation of
principal and income shall be governed by the provisions of the California
Revised Uniform Principal and Income Act, as such may from time to time exist.
Section 5.8 TRUSTEE'S DISCRETION. Unless specifically limited, all
discretions conferred upon the Trustee shall be absolute, and the Trustee's
exercise shall be conclusive on all persons interested in the Trusts. With
respect to the rights of the Trustee to distribute income and/or principal of
any Trust, not otherwise required to be distributed, to or for the use and
benefit of any Beneficiary of such Trust, the Trustee deems appropriate, any
other income and the financial resources of such Beneficiary, so far as known
to the Trustee.
Section 5.9 CO-TRUSTEES. At such times as two or more persons are
acting as Co-Trustees hereunder, each Co-Trustee shall have the power to act
solely in any and all transactions involving the Trust Estate and any and all
powers conferred on the Trustees jointly are also conferred on each
Co-Trustee individually, without the contract, deed, lease, promissory note,
deed of trust or any other instrument of any nature whatsoever, in any way
connected with this Trust or on behalf of this Trust, need only be signed by
any one of said Co-Trustees.
6. BOOKS AND RECORDS
Section 6.1 RECORD OF SHARES. The Trustee shall maintain a record of all
share certificates of the Company which are transferred to the Trustee to be
held pursuant to this Trust, indicating the name in which the stock was held,
the date of issuance of the stock, the class and series of the stock, the number
of shares, and the numbers of the certificates representing those shares. The
Trustee shall also maintain a record of the date on which any such share
certificates
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were received by the Trustee, and the date on which the same were delivered to
the Company for transfer to the Trustee and shall obtain a receipt for any such
certificate so delivered. The Trustee shall receive and hold the new share
certificates issued by the Company in the name of the Trustee and shall maintain
a record indicating the date of issuance of such certificates, the date of
receipt of such certificates, and the place in which such certificates are held.
Section 6.2 BOOK OF ACCOUNTS. The Trustee or its agent shall maintain a
book of accounts showing all sums of money received by the Trustee, all
disbursements made by the Trustee and all obligations incurred by the Trustee
which are unpaid. Information concerning the above accounts shall be posted at
least monthly.
Section 6.3 INSPECTION OF RECORDS. The books and records of the trust
created hereby shall be open to inspection and copying, either in person or by
agent, by any of the parties to this Trust or their successors at any reasonable
time at the office of the Trustee.
7. TERM OF TRUST
Section 7.1 REVOCABILITY OF TRUST. The trust created by this Trust is
hereby expressly declared to be revocable, but only by the vote of a majority in
interest of the Trustors and with the consent of the Beneficiary.
Section 7.2 TERMINATION. This Trust and the trust created hereby shall
terminate on the earlier of (a) ten (10) years after the date hereof without
notice by or to, or action on the part of, the Trustee or any other party here
to, or (b) the sale of the shares, the collection of the cash proceeds
therefrom, and the final distribution of such proceeds to Beneficiary. This
Trust may be terminated at an earlier date by one or more instruments in writing
executed by the Trustee and the vote or written consent of the holders of a
majority of the Trustor interests in the trust created hereby.
Section 7.3 FINAL ACCOUNTING. Within sixty (60) days after termination of
the trust created hereby, the Trustee shall render a final accounting to the
Beneficiary, and the Trustee and shall distribute any funds or other assets held
by the Trustee to the parties entitled thereto.
8. GENERAL PROVISIONS
The following general provisions shall apply to the administration of any
and all Trusts created pursuant to the provisions of this Instrument.
Section 8.1 BOND. No bond shall be required of any person acting as
Trustee hereunder.
Section 8.2 PROFITS AND LOSSES. The profits and losses arising from any
activity of the Trustee, as Trustee of the Trust crated hereunder, shall inure
to the benefit of or be charged against the Trust and not the Trustee.
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Section 8.3 NOTICE OF CHANGED EVENTS. Unless the Trustee receives from
some person interested in a Trust created hereunder, written notice of any
birth, death or other event upon which the right to receive income or principal
from such Trust may depend, the Trustee shall incur no liability for
disbursements made in good faith to persons whose interests are affected by such
event.
Section 8.4 CERTIFICATE OF TRUST. Any transfer agent or other person
dealing with the Trust (hereinafter referred to as "third party") shall be
entitled to rely upon a copy of a Certificate of Trust certified by the Trustee
to be true, or any amendment thereto setting forth the powers of the Trust and
the general provisions relating to the administration of the Trust. Such third
party shall incur no liability to the Trust or any Beneficiary hereunder, for
acting upon an order or request of the Trustee made pursuant to the terms hereof
as set forth in such Certificate of Trust or any amendment thereof, as the case
may be.
Section 8.5 AMENDMENT. The Beneficiaries shall have the power by majority
act (i.e., the Beneficiaries who in the aggregate are entitled to receive more
than fifty percent (50%) of the respective Trust's Net Income) to transfer the
administration of such Trusts to a new non-corporate Trustee. Such substitution
of a new Trustee shall be made by said Beneficiaries by giving a written notice
to the then acting Trustee which indicates the desire of said Beneficiaries to
effect a substitution in the office of Trustee and designates the new Trustee
selected.
Section 8.6 SUCCESSOR TRUSTEE. Any successor of a Trustee hereunder,
whether resulting by consolidation, merger, transfer of trust business or by
death, resignation, refusal or inability to act, or by other reason, shall
succeed as Trustee with like effect as though originally named as such.
Section 8.7 TRANSFER OF TRUSTEE POWERS. All authorities and powers herein
conferred upon a Trustee, shall pass to any and all subsequent Trustees.
Section 8.8 LIABILITY AMONG TRUSTEES. No Trustee shall be liable or
responsible for any act, omission or default of any other Trustee, provided that
he had no knowledge of such act, omissions or default and no knowledge of facts
which might reasonably be expected to put him on notice of it.
Section 8.9 NO DUTY TO EXAMINE BOOKS. No succeeding Trustee shall be
under any duty to examine the books and records of a predecessor Trustee and may
accept as the full Trust Estate any properties which may be turned over to him.
Section 8.10 ACCOUNTING BY TRUSTEE. The Trustee may at any time render an
account of his actions hereunder to the then living Beneficiary of a Trust, the
personal representative of any deceased Beneficiary of a Trust who is entitled
to receive any income during the period accounted for, or the persons to whom
principal of a Trust would be paid over and distributed were such Trust then to
terminate (or if such Trust has terminated, then to the persons to whom it is to
be paid over and distributed). If such accounting is approved by the above,
specified persons, such accounting shall be final, binding and conclusive upon
all persons who may then or thereafter have any interest in the Trust. The
Trustee may also at any time render a judicial accounting of his actions
hereunder. Upon the termination or resignation of a Trustee shall render the
accounting described in this
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Paragraph 7.11. If no objection to such accounting is made by any interested
party herein within ninety (90) days after its receipt, it should be final,
binding and conclusive on all interested parties herein.
Section 8.11 INCAPACITY OF A TRUSTEE. If an individual Trustee is
unable to participate in Trust activities because of illness or disability,
the remaining Trustee may, during any such incapacity, make any and all
decisions regarding the Trust Estate on behalf of such incapacitated Trustee.
In determining the disability of an individual Trustee, the remaining Trustee
may rely on a certificate or other written statement from a physician who has
examined the individual Trustee. In the absence thereof, the remaining
Trustee may petition a court of competent jurisdiction for authority to
proceed on behalf of the incapacitated Trustee under the authority of this
Paragraph 7.12.
Section 8.12 DELEGATION BY CO-TRUSTEE. So long as any person shall
serve as a Co-Trustee of any Trust created hereunder, such person shall have
the power, from time to time, to delegate to the remaining Co-Trustee
hereunder, all or any of his powers as Co-Trustee during temporary vacation
periods or other temporary absences. The power of delegation shall be
exercised by delivery by such Co-Trustee to the remaining Co-Trustee of
written notice specifying the powers delegated; such delegation shall
terminate upon delivery by such Co-Trustee to the remaining Co-Trustee of
written notice of termination. Such remaining Co-Trustee shall incur no
liability to any Beneficiary of the Trust Estate with respect to
administration of the Trust Estate during the period of any such delegation.
9. MISCELLANEOUS
Section 9.1 APPLICABLE LAW. This Trust shall be construed under and
enforced in accordance with the laws of the State of California, without
regard to the conflicts of law provisions thereof.
Section 9.2 ATTORNEYS' FEES. In the event suit is brought by any
party for enforcement of this Trust, each prevailing party shall recover, in
addition to such other relief as may be granted, reasonable attorneys' fees
and experts' fees and costs incurred in bringing such suit and/or in
enforcing any judgement granted therein.
Section 9.3 BINDING EFFECT. This Trust shall inure to the benefit of
and be binding upon the parties and their respective successors and permitted
assigns.
Section 9.4 COUNTERPARTS. This Trust may be executed in counterparts,
each of which shall be an original and all of which together shall constitute
one instrument.
Section 9.5 DESCRIPTIVE HEADINGS. Section headings are included
herein for convenience only and shall not be considered in interpreting this
Trust.
Section 9.6 ENTIRE AGREEMENT. This Trust and the other documents and
instruments referred to herein contain the entire agreement, with respect to
the subject matter hereof, between
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the parties, and supersede all prior agreements or understandings, oral or
written, not contained herein or therein.
Section 9.7 SEVERABILITY. Should any part, term or provision of this
Trust be declared invalid, void or unenforceable, it is the express intent of
the parties that all remaining parts, terms and provisions hereof shall
remain in full force and effect and shall in no way be invalidated, impaired
or affected thereby.
Section 9.8 NO THIRD PARTY RIGHTS. Nothing in this Trust, express or
implied, is intended to confer on nay person other than the parties or their
respective successors and permitted assigns any rights, remedies, obligations
or liabilities under or by reason of this Trust.
Section 9.9 WAIVER OF DEFAULT. Any waiver by either party of a breach
of any term, provision or condition of this Trust shall not operate or be
construed as a waiver of any subsequent breach of the same or any other term,
provision or condition of this Trust. No waiver of any term, provision or
condition of this Trust shall be valid unless in writing and signed by the
party agreeing to such waiver.
Section 9.10 DEFINITIONS. Except as specifically provided herein the
use of the words Trustee, Beneficiaries and similar words for the purpose of
this Trust shall be deemed to include their successors, heirs,
administrators, executors, assigns and other persons standing in the place of
the party referred to whenever appropriate. The term Trustee as used in this
Trust shall apply to the Trustee named in this Trust and to any additional
Trustee appointed and to any successors. Pronouns of one gender shall be
deemed to refer to other genders and the singular shall refer to the plural
and the plural shall refer to the singular when appropriate. No inference
shall be drawn from the use of one gender or the singular or plural other
than as indicated above.
Section 9.11 NOTICE TO TRUSTEE. Any notice to be given to the Trustee
hereunder shall be sufficiently given if mailed to Trustee at 300 Oceangate,
Suite 500, Long Beach, California 90802, or at such other address as the
Trustee may from time to time designate by written notice given to the
Certificate Holders.
Section 9.12 NOTICE TO BENEFICIARIES. Any notice to be given to any
Beneficiary shall be sufficiently given if mailed by a nationally recognized
overnight courier, postage prepaid, to the Shareholder at his last known
address. Such notice shall for all purposes be deemed to have been given on
the first business day after mailing thereof.
Section 9.13 AMENDMENT OF TRUST. If at any time the Trustor and
Trustee deem it advisable to amend this Trust, it shall submit such proposed
amendment to the Beneficiaries for their approval at a special meeting of
such Beneficiaries which shall be called for that purpose. Notice of the time
and place of such meeting shall be given in the manner provided in the
California Corporations Code for notice of shareholders meetings, and shall
contain a copy of the proposed amendment. If, at such meeting or any
adjournment thereof, the proposed amendment shall be approved by the
affirmative vote of a majority of the Beneficiaries, the proposed amendment
so approved shall become a part of this Trust as if originally incorporated
herein.
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Section 9.14 SPENDTHRIFT. No interest of any Beneficiary in any Trust
created pursuant to any provision hereof, nor any part of such interest,
shall be anticipated, assigned, encumbered or by other means transferred or
be subject to any creditor's claim, liable to attachment or any other legal
process prior to its actual receipt by the Beneficiary thereof and any
attempted transfer, whether voluntarily, involuntarily or by operation of
law, shall result in the complete forfeiture of such Trust Estate by the
Trust. This Trust has been established for the sole and exclusive benefit of
Beneficiary and Trustor and is intended to encourage the continued employment
of Beneficiary with Netgateway, Inc. The rights of Beneficiary hereunder are
personal to Beneficiary and may not be assigned, transferred or hypothecated,
without the express written consent of Trustee.
IN WITNESS WHEREOF, the parties hereto have caused this Trust to be duly
executed as of the date first above written.
TRUSTOR
By: /s/ KDF
--------------------------------
Keith D. Freudhoff
TRUSTEE:
By: /s/ KDF
--------------------------------
Keith D. Freudhoff
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PROSOFT I-NET SOLUTIONS, INC.
COURSEWARE REPRODUCTION LICENSE AGREEMENT
This Courseware Reproduction License Agreement (this "Agreement") is
made and entered into as of the 29th day of October, 1997 (the "effective
date"), by and between Prosoft I-Net Solutions, Inc., a Nevada corporation
having its principal place of business at 2333 North Broadway, Suite 300,
Santa Ana, California ("Prosoft"), and STEPS, Inc., a [Utah] corporation
having its principal place of business at 1845 East Baywood Blvd., Salt Lake
City, Utah ("Customer").
R E C I T A L S:
WHEREAS, Prosoft is engaged in the development, distribution and sale of
certain Internet, intranet and other computer training products and services,
as more particularly described in Prosoft's catalogues and other written and
electronic materials (collectively, the "Training Products");
WHEREAS, in conjunction with the development, distribution and sale of
such Training Products Prosoft has developed specific written and electronic
course materials (the "Courseware Titles"), which Courseware Titles are set
forth on SCHEDULE 1 to this Agreement;
WHEREAS, Customer wishes to purchase the Courseware Titles from Prosoft
in electronic format for the purpose of reproducing and packaging the
Courseware Titles for distribution and resale to its customers, including
without limitation the Federal Government, under the terms and conditions of
this Agreement.
NOW, THEREFORE; in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby agree as follows:
1. DEFINITIONS. When used in this Agreement, the following terms shall
have the respective meanings indicated:
"Customer Resale" shall mean the reproduction, manufacture, and
packaging of the Courseware Titles into the Kits for distribution and resale
to the Customer's clients, provided however that Customer Resale shall not
include the licensing or sublicensing of the Courseware Titles without the
prior written consent of Prosoft (which shall not be unreasonably withheld)
or any other use of the Courseware Titles otherwise prohibited under the
terms of this Agreement.
"Electronic Courseware Title" shall mean a Courseware Title that is
reproduced on a CD-ROM containing substantially the same information and
lessons as the Paper-based Courseware Title.
"End Customer" shall mean any client of Customer that purchases the
Kits.
"Exercise Disk" shall mean a 3-1/2 inch floppy disk containing
classroom exercises for a Courseware Title.
"Kit" shall mean any reproduction of any Courseware Title that
includes one, two or three of the following constituent elements, and is
packaged and sold as a single unit: (a) a Paper-based Courseware Title; (b)
an Electronic Courseware Title; (c) an Exercise Disk. For purposes hereof,
each element described in clauses (a) through (c) of the previous sentence
shall be referred to as a "part thereof" with respect to each Kit.
"Paper-based Courseware Title" shall mean a Courseware Title that is
reproduced into a bound paper book.
2. GRANT OF REPRODUCTION RIGHTS.
2.1 Grant of Reproduction License. Subject to the terms and
conditions of this Agreement, Prosoft hereby authorizes Customer to reproduce
and distribute the Courseware Titles exclusively for Customer Resale.
Customer may not license or sublicense the Courseware Titles to any third
parties in any form without the prior written consent of Prosoft (which shall
not be unreasonably withheld). Customer will ensure that the Courseware
Titles will not be provided to, used on, or accessed through the Internet, a
public computer bulletin board or "shareware" distribution process, and
Customer agrees not to reverse compile, translate or disassemble the
Courseware Titles, in whole or in part. Prosoft reserves all rights not
expressly granted to Customer in this Agreement.
<PAGE>
2.2 Reproduction and Manufacture Procedure. Upon the execution of
this Agreement, Prosoft will deliver the Courseware Titles to Customer in
electronic format on "Gold Disk(s)" which will allow Customer to reproduce
copies of the Courseware Titles into individual Kits. Customer will ensure
that all Kits contain adequate copyright notices so as to protect Prosoft's
copyright interest. Customer will keep accurate records of all copies created
in accordance with Section 3.5 of this Agreement. Prosoft shall have no
responsibility for and shall bear no cost associated with the reproduction,
manufacture, packaging, shipping, distribution, marketing or resale of the
Kits.
2.3 Title to Prosoft Products. Subject to the rights granted to
Customer herein, all right, title and interest in and to the Courseware
Titles, or any element thereof constituting the Kits, including its text,
logic, structure and presentation, and to any improvements, enhancements,
update or upgrades to them, including the concepts and technology inherent in
the Courseware Titles, are, and at all times shall remain, the sole and
exclusive property of Prosoft. Nothing contained in this Agreement shall
directly or indirectly be construed to assign or grant to Customer any right,
title or interest in or to the trademarks, copyrights, patents or trade
secrets of Prosoft or any ownership rights in or to the Courseware Titles.
3. LICENSE FEES.
3.1 Guaranteed License Fee. Upon execution of this Agreement,
Customer shall be immediately bound and obligated to pay to Prosoft a
guaranteed, non-refundable license fee in the amount of $1,800,000 (the
"Guaranteed License Fee") on such dates as specified on SCHEDULE 2.
Customer's payment of the Guaranteed License Fee shall be guaranteed,
unconditional, irrevocable and non-refundable, regardless of the number of
Kits sold by the Customer to its End Customers. The payment by Customer of
the Guaranteed License Fee shall serve as consideration of the grant by
Prosoft to Customer of the right to reproduce Kits from the Courseware
Titles set forth on SCHEDULE 1 in accordance with the terms of this
Agreement, and shall be payable notwithstanding the future production of
other courseware titles not set forth on SCHEDULE 1 (the "Future Titles") by
Prosoft. Prosoft may, at its sole option, make such Future Titles available
to Customer for reproduction under such separate agreement(s) as Customer and
Prosoft may enter into in the future.
3.2 Royalties for Reproductions. For each Kit reproduced by or for
the benefit of Customer in excess of 200,000 Kits, Customer shall pay Prosoft
a royalty equal to $5.00 per Kit (the "Reproduction Royalty"), as specified
in SCHEDULE 2. A Reproduction Royalty shall be due and owing for each Kit
produced by Customer, regardless of whether such Kit or part thereof is
placed into service or specific use. A Reproduction Royalty is due and owing
each time a reproduction of any Kit is made, regardless of whether that
reproduction is made as a result of Customer distributing the Kit as part of
a replacement, supplement, upgrade or otherwise.
3.3 Payments Due. Customer shall provide monthly written reports
indicating the quantities of Kits (and the parts thereof) reproduced and
royalties due thereon, and such amounts shall be paid within thirty (30) days
of the end of each month for all reproductions made that month (or for any
prior month(s) for which royalties are calculable). All sums are to be paid
in United States dollars. Any payment not received when due shall bear
interest at the rate of 10% per annum, calculated monthly.
3.4 Records. Customer shall keep true and accurate records of all
Kits (and parts thereof) reproduced in accordance with generally accepted
accounting principles, consistently applied. No more frequently than twice a
year, Prosoft shall have the right (upon two business days prior notice) to
have a certified public accountant selected by Prosoft audit the books of
Customer to determine whether all royalties due have been paid. Prosoft shall
pay the cost of such investigation, except that should the accountant find
that the royalties for a period investigated have been underpaid by five
percent (5%) or more, the entire cost of the investigation shall be borne by
Customer. Customer shall immediately pay to Prosoft any amounts discovered to
be owed as a result of the investigation, plus interest at the rate of ten
percent (10%) per annum, calculated monthly for each month the amount due was
outstanding.
4. GRANT OF EXCLUSIVITY. From the effective date until December 31,
1998, Customer shall have the exclusive right to resell the Courseware Titles
to the Federal Government and all agencies, departments, divisions, bureaus
and branches thereof (the "Federal Government"). From January 1, 1999 until
December 31, 1999, this exclusivity right with respect to the Federal
Government shall no longer be in effect, but Customer may nevertheless
continue to sell the Courseware Titles to the Federal Government on a
non-exclusive basis.
5. REPRESENTATION AND WARRANTIES OF THE PARTIES.
5.1 Customer represents and warrants that it has the authority to
enter into this Agreement, and to carry out its obligations hereunder, and
that the performance of this Agreement shall not cause a breach of any other
obligation of Customer.
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5.2 Each party represents and warrants as follows: (a) such party
has full power and authority to execute, deliver and perform its obligations
under this Agreement; (b) such party is financially solvent and has the
sufficient liquidity and financial wherewithal to perform its obligations
under this Agreement; (c) there are no actions, proceedings or
investigations, pending or, to the best of the such party's knowledge,
threatened against such party which may in any manner whatsoever materially
affect the enforceability of this Agreement; and (d) the execution, delivery
and performance of this Agreement will not constitute a breach or default
under any agreement, law or court order under which such party is a party or
may be bound.
6. COPYRIGHT OBLIGATION. Customer covenants and warrants that the
copyright notices included in the "Gold Disk" copy of the Courseware Titles
and set forth on SCHEDULE 3 hereto shall be reproduced with each Kit (and
each part thereof). Customer agrees that each copy of the Kits (and each part
thereof) shall also include a notice stating that such Kit (and each part
thereof) were "Reprinted with permission of Prosoft I-Net Solutions, Inc." If
Customer believes that any of Prosoft's contractual, statutory, intellectual
property or other rights are being violated, it agrees to promptly notify
Prosoft and to cooperate in any investigation.
7. TRADEMARKS; TRADENAMES AND COPYRIGHTS.
7.1 Acknowledgments of Rights. Customer acknowledges that Prosoft is
the owner of all right, title and interest in and to the name Prosoft and the
trademarks or trademark applications listed on SCHEDULE 3 hereto in
connection with Internet, intranet and other computer training and services
(the "Trademarks"), and Customer agrees not to adopt or use the Trademarks
in any manner whatsoever except as expressly provided in this Agreement.
Customer further acknowledges that Prosoft is the owner of all right, title
and interest in and to all copyrights of Prosoft relating to the Courseware
Titles (the "Copyrights"), and Customer agrees not to reproduce any material
subject to any such Copyright except as expressly provided in this Agreement.
7.2 Use of Trademarks in Connection with Courseware Titles. Customer
agrees to use the Trademarks only within the Courseware Titles or to identify
the authorized use of the Courseware Titles. Customer's use of the Trademarks
shall at all times be in accordance with such styles and together with such
Trademark notices as Prosoft may require. Customer shall not combine the
Trademarks with any other names or marks, and agrees that this Agreement does
not constitute any conveyance of any right, title or interest in or to any
Trademarks, except for the permissive uses provided herein.
7.3 Infringements. Customer shall promptly notify Prosoft of any
and all infringements or attempted infringements of any of Prosoft's
Trademarks that may come to its attention, and shall assist Prosoft at
Prosoft's expense in taking such action against such infringers as Prosoft,
in its discretion, may elect.
7.4 Customer's Down-Stream Customers. [TO COME--CONCEPT IS THAT
CUSTOMER IS OBLIGATED TO REQUIRE THAT ANY DOWNSTREAM DISTRIBUTOR OR
END-USER ENTITY EXECUTE A LICENSING AGREEMENT IN FAVOR OF PROSOFT ATTACHED
TO THIS AGREEMENT AS AN EXHIBIT].
8. WARRANTY.
8.1 Warranty on Courseware Titles. Prosoft warrants that the
Courseware Titles as delivered to Customer will conform in all material
respects to the written version thereof at the time of delivery to Customer.
Prosoft makes no warranty to the end-users of the Courseware Titles, any such
warranty to be made and honored by Customer. NO OTHER WARRANTY, OR CONDITION,
EXPRESSED OR IMPLIED, INCLUDING WARRANTIES OR CONDITIONS RELATED TO FITNESS
FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, ARE GRANTED TO CUSTOMER OR
END-USERS, AND ALL SUCH WARRANTIES AND CONDITIONS ARE EXPRESSLY EXCLUDED.
8.2 Defective Courseware Titles. Should the Courseware Titles fail
to be as warranted above, Customer should return the Courseware Titles to
Prosoft within 30 days of delivery thereof. Prosoft will then, at its sole
option, correct or replace th Courseware Titles such that the Courseware
Titles comply with Section 8.1.
8.3 THE SECTION 8 CONTAINS THE EXCLUSIVE REPRESENTATION, WARRANTIES
AND ASSOCIATED REMEDIES FOR ANY CLAIM ASSOCIATED WITH THE PERFORMANCE OF THE
COURSEWARE TITLES, REGARDLESS OF WHETHER SUCH CLAIM IS MADE IN CONTRACT OR
TORT.
9. LIABILITY AND INDEMNIFICATION.
9.1 Limitations on Liability. CUSTOMER AGREES THAT, REGARDLESS OF
THE FORM OF ANY CLAIM, CUSTOMER'S SOLE REMEDY AND PROSOFT'S SOLE OBLIGATION
SHALL BE GOVERNED BY THIS
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AGREEMENT, AND IN NO EVENT SHALL PROSOFT'S LIABILITY EXCEED THE LICENSE FEES
ACTUALLY PAID FOR THE COURSEWARE TITLES THAT GAVE RISE TO THE CLAIM DURING
THE 12 MONTH PERIOD IMMEDIATELY PRECEDING THE CLAIM, PROVIDED THAT THE ABOVE
LIMITATION SHALL NOT APPLY TO CLAIMS FOR INFRINGEMENT PURSUANT TO SECTION 9.2
OF THIS AGREEMENT. CUSTOMER EXPRESSLY AGREES THAT IN NO EVENT SHALL PROSOFT
BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES ARISING FROM
SECTION 9.2, BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE OR ANY OTHER
LEGAL THEORY, WHETHER IN TORT OR CONTRACT, EVEN IF PROSOFT HAS BEEN APPRISED
OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING, INCLUDING WITHOUT LIMITATION
DAMAGES FROM INTERRUPTION OF BUSINESS, LOSS OF PROFITS OR BUSINESS
OPPORTUNITIES, LOSS OF USE OF SOFTWARE, LOSS OF DATA, COST OF RECREATING
DATA, COST OF CAPITAL, COST OF ANY SUBSTITUTE SOFTWARE, OR LOSSES CAUSED BY
DELAY. PROSOFT SHALL NOT BE RESPONSIBLE FOR ANY DAMAGES OR EXPENSES RESULTING
FROM ALTERATION OR UNAUTHORIZED USE OF THE COURSEWARE TITLES, OR FROM THE
UNINTENDED AND UNFORESEEN RESULTS OBTAINED BY CUSTOMER RESULTING FROM SUCH
USE. SHOULD ANY LAW UNDER WHICH THIS AGREEMENT IS INTERPRETED PROHIBIT
EXCLUSION OF CERTAIN CONDITIONS OR WARRANTIES, THE REQUIRED CONDITIONS OR
WARRANTIES SHALL BE DEEMED INCLUDED. THE LIABILITY OF PROSOFT FOR ANY BREACH
OF SUCH TERM, CONDITION OR WARRANTY SHALL BE LIMITED, AT THE OPTION OF
PROSOFT, TO ANY ONE OR MORE OF THE FOLLOWING: (A) REPLACEMENT OF THE
COURSEWARE TITLES WITH FUNCTIONALLY COMPARABLE MATERIALS; OR (B) SUPPLEMENT,
MODIFY OR REVISE THE COURSEWARE TITLES TO MEET THE REQUIRED WARRANTY OR
CONDITION.
9.2 Copyright Infringement. Prosoft shall, at its cost, defend or,
at its sole option, settle any claim or suit brought against Customer on the
issue that the Courseware Titles infringe a United State copyright, provided
that Customer (a) notifies Prosoft promptly in writing of any such claim or
suit; (b) gives Prosoft full information and assistance in settling and/or
defending the suit; and (c) gives Prosoft full authority and control of the
defense and/or settlement of any such action. Prosoft shall not be liable for
any costs or expenses incurred (a) by Customer without Prosoft's prior
written authorization; (b) for any claim based on the use of a combination of
the Courseware Titles with any other property not provided by Prosoft, (c)
for any claim based on Customer's modification of the Courseware Titles; or
(d) from use of other than the latest available version of the Courseware
Titles.
9.3 If the Courseware Titles become subject to a claim of
infringement for which Prosoft may become liable, Prosoft may at its option
(a) obtain the right to continue using the Courseware Titles; or (b) replace
or modify the Courseware Titles to make them non-infringing, so long as the
replacement or modification meets substantially similar specifications,
EXCEPT FOR THESE REMEDIES, PROSOFT SHALL HAVE NO LIABILITY TO CUSTOMER OR ITS
CUSTOMERS FOR COPYRIGHT, PATENT, TRADE SECRET OR ANY OTHER CLAIM ASSOCIATED
WITH AN INFRINGEMENT OF A PROPRIETARY RIGHT, AND SHALL IN NO INSTANCE HAVE
ANY LIABILITY TO CUSTOMER FOR DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES FROM
INFRINGEMENT.
10. TERM AND TERMINATION.
10.1 Term. This Agreement shall have an initial term from the
effective date through December 31, 1998, as specified on Schedule 2 and
shall then terminate automatically. This Agreement may be renewed
subsequently, however, on an annual or multi-annual basis upon the mutual
written consent of the parties.
10.2 Termination for Cause. Prosoft may terminate this Agreement
upon the happening of any of the following events if Customer fails to cure
the problem within ten (10) days of notice of an intent to cancel if not
cured:
a. Customer fails to make any payment when due; or
b. Customer breaches any representations, warranty, or any material
term of this Agreement or fails to perform any duty required hereunder; or
c. Customer fails to comply with any legal prerequisites, formalities
and/or material government regulations applicable to performance of its
obligations under this Agreement.
10.3 Termination by Customer. Customer may terminate this Agreement
upon the happening of one of the following events if Prosoft fails to cure
such event within thirty (30) days' notice of an intent to cancel if not
cured:
a. Prosoft breaches any warranty or material term of this Agreement
or fails to perform any duty required hereunder; or
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b. Prosoft fails to comply with any legal prerequisites,
formalities, and/or material government regulations applicable to performance
of its obligations under this Agreement.
10.4 Effect of Termination. Customer agrees that upon
expiration or termination of this Agreement under this Section 10, Prosoft is
discharged from any further obligations under this Agreement and Customer's
rights to reproduce and distribute the Courseware Titles and to use Prosoft's
tradename and trademarks as provided in this Agreement shall cease as of the
date of such expiration or termination except as follows: Within thirty (30)
days of the delivery by Prosoft or receipt by Prosoft of a notice of
termination at the end of any term or expiration, or within ten (10) days
after automatic termination or termination for cause, Customer shall: (1)
return to Prosoft all Gold Disk(s); and (2) destroy all copies of the
Courseware Titles or Kits not previously distributed, in whatever form they
exist, including deleting all copies from any electronic memories.
Notwithstanding the foregoing, with respect to any copies of the Courseware
Titles or Kits that have been distributed for Customer Resale prior to the
termination date, Customer may grant the approved license to use the
Courseware Titles or Kits to end-users of these specific copies of the
Courseware Titles or Kits; provided, however, that this permission does not
allow Customer, after the date of termination, to make further reproductions
of the Courseware Titles or Kits or to fill requests for copies orders that
have not been filled on the date of termination or that are received after
that date. All licenses for Customer Resale previously given, provided they
were in accordance with the terms of this Agreement, shall continue in effect
after termination or expiration of the Agreement.
All requirements of indemnification, payment, and terms related to use
or protection of intellectual property or confidential information, and
provisions related to venue and choice of laws, shall survive termination or
expiration of this Agreement.
11. ARBITRATION. All disputes and controversies arising out of, or in
any manner relating to, this Agreement which the parties do not resolve in
good faith within thirty (30) days after either of the parties notifies the
other of its desire to arbitrate such dispute or controversy shall be settled
by arbitration by the American Arbitration Association in accordance with its
then prevailing Commercial Arbitration Rules. Such arbitration shall be
conducted in Orange County, California. The award or decision made in such
arbitration shall be binding upon the parties and judgment upon the award may
be made in any court having jurisdiction. The prevailing party shall be
entitled to recover from the other party all reasonable costs and expenses of
arbitration.
12. NO AGENCY, REPRESENTATION OR JOINT VENUE. It is expressly
understood that Customer and Prosoft are business entities independent of one
another. Neither the making of this Agreement nor the performance of any part
of its terms shall be construed to constitute Customer as an agent or
representative of Prosoft for any purpose. Nor shall this Agreement be deemed
to establish a joint venture or partnership.
13. FORCE MAJEURE. Failure of Prosoft or Customer to perform its
obligations hereunder, or a portion thereof if occasioned in whole or in part
by any act of God, any act of fire, explosion, perils of sea, flood, war, or
any action of any governmental authority shall excuse the non-performing
party from performing the non-performing party's obligations to perform shall
be suspended for the duration of such excusing event.
14. ASSIGNMENT. The rights granted herein to Customer are personal,
nontransferable, and non-assignable in whole or in part unless prior written
consent is received from Prosoft, which consent shall not be unreasonably
withheld.
15. HEADINGS. The headings contained in this Agreement are for
convenience only and should not be construed to limit or expand any terms
otherwise provided.
16. NOTICES. Any notice made in relation to this Agreement shall be
sent to the addresses set forth above, or such other address as the intended
recipient has previously designated by written notice. This notice shall be
sent by a prepaid courier service which requires signature for receipt or by
facsimile.
17. LEGAL REVIEW. It is acknowledged that this Agreement was initially
prepared by Prosoft. Both parties, however, have had an opportunity for legal
review of all terms. The parties therefore agree that, in interpreting any
issues which may arise, any rules of construction related to who prepared
the Agreement shall be inapplicable, each party having contributed or having
had the opportunity to contribute to clarify any issue.
18. PARTIAL ILLEGALITY. It is agreed that if any provision, or part of
a provision, of this Agreement is held to be invalid or unenforceable under any
applicable statute or rule of law, then the parties shall use their best
efforts to replace the invalid or unenforceable provision by a provision
that, to the extent permitted by applicable law, achieves the purposes
intended under the original provision and to allow the parties to have the
intended benefit of their bargain. If it cannot be so reformed it
5
<PAGE>
shall be omitted. In any such instance, the balance of this Agreement shall
remain valid and unchanged and in full force and effect.
19. WAIVER OF COMPLIANCE. Any failure by either party to enforce at
any time any term or condition under this Agreement shall not be considered a
waiver of that party's right thereafter to enforce each and every term and
condition of this Agreement.
20. APPLICABLE LAW. The parties agree that this Agreement shall be
governed and construed by the laws of the State of California, and that no
conflict-of-laws provision shall be invoked to permit the laws of any other
state or jurisdiction.
21. AMENDMENTS. All amendments to or changes in this Agreement must be
in a writing executed by both parties.
22. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding between the parties on the subject matter above, and
supersedes any and all prior agreements (written and oral) between the
parties.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original and all of which shall
constitute one and the same agreement with the same effect as if all parties
had signed the same signature page. Any signature page of this Agreement may
be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto but having
attached to it one or more additional signature pages. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that
it accepts telecopied signatures of the other parties to this Agreement, with
original signatures to be forwarded to the other party as promptly as
possible.
[signature page follows]
6
<PAGE>
In Witness Whereof, the parties hereto have duly executed this Agreement
on the date first above written.
PROSOFT: CUSTOMER:
PROSOFT I-NET SOLUTIONS, INC. STEPS, INC.
a Nevada corporation a Utah corporation
By: /s/ Donald Danks By: /s/ R. Scott Beebe V.P.
------------------------------ ---------------------------------
Donald Danks Scott Beebe
Senior Vice President Vice President
7
<PAGE>
Schedule 1
Courseware Titles
PAPER-BASED COURSEWARE TITLES
Basic Internet Business Skills
Advanced Internet Business Skills
Mastering the Net With Netscape Communicator
Empowering the Enterprise With Microsoft Internet Explorer 4.0
Internet Security for Business Applications
Internet/Intranet Business Applications Using Office 97
Gaining Market Intelligence Using the World Wide Web
Introduction to HTML Authoring
Advanced HTML Authoring
Internet/Intranet Publishing Using Microsoft FrontPage 97
Web Publishing Using HTML and FrontPage 97
Microsoft: Web Master Boot Camp
Visual Site Design and Management Using NetObjects FUSION 2.0
Introduction to VRML Authoring and Interactive 3D Modeling For the Web
Introduction to JavaScript Programming
Advanced JavaScript Programming
Introduction to Database Publishing Using Visual InterDev
Fundamentals of CGI Programming Using Perl
Introduction to ActiveX Technology and Tools
Deploying Active Server Pages
Developing Java Applets and ActiveX Controls Using Visual J++
Intranet Security Threats and Countermeasures
Advanced TCP/IP Internetworking
ELECTRONIC COURSEWARE TITLES
Basic Internet Business Skills
Advanced Internet Business Skills
Empowering the Enterprise With Microsoft Internet Explorer 4.0
Internet Security for Business Applications
Gaining Market Intelligence Using the World Wide Web
Introduction to HTML Authoring
Advanced HTML Authoring
Internet/Intranet Publishing Using Microsoft FrontPage 97
Introduction to JavaScript Programming
Advanced JavaScript Programming
8
<PAGE>
Schedule 2
Agreement Terms
Guaranteed Royalty: $1,800,000
Payment dates of Guaranteed Royalty:
<TABLE>
<S> <C>
Upon effective date (October 29, 1997): $150,000
January 15, 1998: $150,000
April 15, 1998: $400,000
July 15, 1998: $500,000
October 15, 1998: $600,000
</TABLE>
Reproduction Royalties (for every Kit in excess of 200,000 Kits): $5.00
Initial Agreement Term: Effective date through December 31, 1999
9
<PAGE>
Schedule 3
Trademarks
Copyright Notifications
10
<PAGE>
Schedule 2
Agreement Terms
Guaranteed Royalty: $1,800,000
Payment dates of Guaranteed Royalty:
Upon effective date (October 29, 1997)
<TABLE>
<S> <C>
December 10, 1997: $150,000
April 15, 1998: $400,000
July 15, 1998: $500,000
October 15, 1998: $600,000
</TABLE>
Reproduction Royalties (for every Kit in excess of 200,000 kits): $5.00
Initial Agreement Term: Effective date through December 31, 1999
<PAGE>
AMENDMENT NO. 1 TO
COURSEWARE REPRODUCTION LICENSE AGREEMET
THIS AMENDMENT NO. 1 TO COURSEWARE REPRODUCTION LICENSE AGREEMENT (the
"AMENDMENT") between PROSOFT I-NET SOLUTIONS, INC. ("PROSOFT") and STEPS,
INC. ("the DISTRIBUTOR") is made and entered into as of the 4th day of
November, 1997. Prosoft and Distributor will be sometimes collectively
referred to herein as the "PARTIES."
R E C I T A L S
---------------
A. The parties entered into a Courseware Reproduction License Agreement
dated October 29, 1997 (the "LICENSE AGREEMENT").
B. The parties desire to amend the License Agreement pursuant to the terms
and conditions set forth herein.
AGREEMENT
1. SCHEDULES 1 AND 2. Schedules 1 and 2 of the Agreement are hereby
replaced with Schedules 1 and 2, respectively, attached to this Amendment.
2. DEFINITIONS. The following definition shall be added to Section 1:
"Net Receipts" shall mean all gross revenue received from the sales,
licensing or other distribution of the Kits, but not including revenue not
directly related to the sale or licensing of the Kits. Examples of items
that are not included in the term "Net Receipts," include but are not
limited to, taxes, duties, tariffs, freight, shipping, support or other
charges, but only to the extent such other items are separately stated on
the invoice(s).
3. SECTION 2. The title to Section 2 of the Agreement is hereby amended
to read as follows:
"2. GRANT OF LICENSE."
4. SECTION 2.1. Section 2.1 of the Agreement will be amended to read in
its entirety as follows:
"2.1 GRANT OF LICENSE. Prosoft hereby grants to Customer an exclusive
license to use, sell, or distribute the Courseware to the Federal
Government and all agencies, departments, divisions, bureaus, branches,
instrumentalities, and subparts thereof, (collectively, the "FEDERAL
GOVERNMENT"). In addition, and subject to the terms and conditions of this
Agreement, Prosoft hereby authorizes Customer to reproduce and
<PAGE>
distribute the Courseware Titles exclusively for Customer Resale. Customer
may not license or sublicense the courseware Titles to any third parties in
any form without the prior written consent of Prosoft (which consent shall
not be unreasonably withheld). Customer agrees not to reverse compile or
translate the Courseware Titles, in whole or in part. Customer shall have
the rights to sell the Kits, or any part thereof, in any combination of
elements that it deems appropriate (for example, without limiting the
forgoing, Customer may package and sell the Electronic Courseware Title
alone, or in combination with a Paper-based Courseware Title and/or an
Exercise Disk). Prosoft reserves all rights not expressly granted to
Customer in this Agreement."
5. SECTION 3. Sections 3.1, 3.2 and 3.3 of the Agreement are hereby
amended to read in their entirety as follows:
"3. LICENSE FEES.
3.1 ROYALTY PAYMENTS. Customer shall pay to Prosoft twenty percent
(20%) of Customer's Net Receipts from Customer's distribution of the Kits
(such amounts being referred to herein as the "Royalty Payments"). Such
royalty Payments shall be payable in accordance with Section 3.3 hereof.
3.2 GUARANTEED LICENSE FEE. Upon execution of this Agreement, Customer
shall be immediately bound and obligated to pay to Prosoft a guaranteed,
non-refundable license fee in the amount of $1,800,000 (the "GUARANTEED
LICENSE FEE") on such dates as specified on Schedule 2, which Guaranteed
License Fee shall constitute an advance by Customer on all Royalty Payments
owing by Customer to Prosoft under Section 3.1. Cutomer's payment of the
Guaranteed License Fee shall be guaranteed, unconditional, irrevocable and
non-refundable, regardless of the number of Kits sold by the Customer to
its End Customers and the amount of the Royalty Payments due to Prosoft.
The payment by customer of the Guaranteed License Fee shall serve as
consideration for the grant by Prosoft to Customer of the right to
reproduce Kits from the courseware Titles set forth on Schedule 1 in
accordance with the terms of this Agreement, and shall be payable
notwithstanding the future production of other courseware titles not set
forth on Schedule 1 (the "Future Titles") by Prosoft. Notwithstanding
anything to the contrary contained herein, Customer shall have the right at
any time and from time to time to substitute Future Titles for any of the
Courseware Titles set forth on Schedule 1, so long as the total number of
the titles subject to this Agreement does not increase in number.
3.3 PAYMENTS DUE. Customer shall provide monthly written reports
indicating the quantities of Kits (and the parts thereof) reproduced
2
<PAGE>
and the Royalty Payments due thereon, and such amounts shall be paid
within thirty (30) days of the end of each month for all reproductions
made that month (or for any prior month(s) for which royalties are
calculable), provided that no Royalty Payments shall be due Prosoft until
the total amount of all Royalty Payments exceed the total amount of the
Guaranteed License Fee, and then only to the extent of the excess. All
sums are to be paid in United States dollars. Any payment not received
when due shall bear interest at the rate of 10% per annum, calculated
monthly."
6. SECTION 5. Section 4 of the Agreement is hereby amended to read
in its entirety as follows:
"4. GRANT OF EXCLUSIVITY. From the effective date until
December 31, 1999 (the "Exclusivity Period), Customer shall have the
exclusive right to resell the Courseware Titles to the Federal
Government. Except as expressly set forth herein, neither (i) Prosoft and
its agents, affiliates and employees, nor (ii) any other third party,
(the parties referred to in clauses (i) and (ii) being referred to herein
as the "Restricted Parties"), shall sell or distribute the Courseware
Titles to the Federal Government during the Exclusivity Period. Prosoft,
at its sole cost and expense, shall take all necessary measures and
actions (including the prosecution of lawsuits and injunctions with the
proper courts) to insure that no Restricted Parties shall sell or
distribute the courseware Titles to the Federal Government during the
Exclusivity Period. Notwithstanding anything to the contrary contained
herein, the Courseware Titles may be sold or distributed by the
Restricted Parties to the Federal Government during the Exclusivity
Period, provided that such Restricted Parties pay to Customer a
sublicense fee equal to 25 percent of the invoiced revenue for any
Government Training Event. For purposes hereof, "GOVERNMENT TRAINING
EVENT" shall include, but not necessarily be limited to, seminars,
instructor led training, distance learning, and the like, that any of the
Restricted Parties deliver to the Federal Government, including, but not
limited to any training delivered in the Washington D.C. market.
6. SECTION 10.1. Section 10.1 of the Agreement is hereby amended
to read in its entirety as follows:
"10.1 TERM. This Agreement shall have an initial term from the
effective date through December 31, 1999, as specified on Schedule 2 and
shall then terminate automatically. Customer shall have the right to
renew this Agreement for a two (2) year renewal term (the "RENEWAL TERM")
by providing written notice to Prosoft any time during the last six (6)
months of the existing term. Upon commencement of the Renewal Term,
3
<PAGE>
Customer shall become obligated to pay a Guaranteed License Fee in the
amount of $1,800,000. Payments shall be made consistent with the time
schedule established for the Guaranteed License Fee during the initial
term of this Agreement. Thereafter, the term of this Agreement may be
renewed on an annual or multi-annual basis upon mutual written consent of
the parties."
7. SECTION 11. Section 11 of the Agreement is hereby amended to
read in its entirety as follows:
"11. ASSIGNMENT. Except as provided herein, neither party may
assign their rights or obligations under this Agreement. Notwithstanding
anything to the contrary contained herein, either party may assign this
Agreement to a company which acquires it or into which it is merged,
provided that such acquiring company assumes all the obligations under
this Agreement."
Other than as amended hereby, the Agreement shall remain in full
force and effect and the parties hereby ratify and reaffirm the Agreement
as so amended. All references in the Agreement to "the Agreement," "this
Agreement," "hereof" and words of like import shall mean the Agreement as
modified by this Amendment.
IN WITNESS WHEREOF the parties hereto have executed this Amendment
as of the date set forth above.
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By /s/ Donald Danks
-----------------------------------
DONALD DANKS
Senior Vice President
STEPS, INC.
a Utah corporation
By /s/ R. Scott Beebe V.P.
-----------------------------------
SCOTT BEEBE
Vice President
4
<PAGE>
AMENDMENT NO. 2 TO
COURSEWARE REPRODUCTION LICENSE AGREEMENT
THIS AMENDMENT NO. 2 TO COURSEWARE REPRODUCTION LICENSE AGREEMENT (the
"AMENDMENT") between PROSOFT I-NET SOLUTIONS, INC. ("PROSOFT") and STEPS,
INC. (the "CUSTOMER") is made and entered into as of the 1st day of August,
1998. Prosoft and Customer will be sometimes collectively referred to herein
as the "PARTIES."
R E C I T A L S
A. The parties entered into a Courseware Reproduction License Agreement
dated as of October 29, 1997 (the "ORIGINAL AGREEMENT"), as amended by the
Amendment No. 1 to Courseware Reproduction License Agreement dated as of
November 4, 1997 (the "FIRST AMENDMENT", the Original Agreement, as amended
by the First Amendment, shall be referred to herein as the "AGREEMENT").
B. The parties desire to amend the Agreement pursuant to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby agree as follows:
1. SCHEDULES 2. Schedule 2 of the Agreement is hereby replaced with
Schedule 2 attached to this Amendment.
2. DEFINITIONS.
(a) A new definition of "Future Titles" shall be inserted in the
appropriate alphabetical location in Section 1 of the Agreement and shall
read as follows:
"Future Titles" shall mean Courseware Titles tied to internet
skills or training that are not set forth on Schedule 1 of this Agreement
or that are developed or published by Prosoft after the date of this
Agreement, but shall not include any courseware that is not developed by
Prosoft."
(b) The definition of "Net Receipts" set forth in Section 1 of
the Agreement is hereby amended to read as follows:
"Net Receipts" shall mean all gross revenue received from the
sales, licensing or other distribution of the Kits, but not including
revenue not directly related to the sale or licensing of the Kits,
provided that the price charged for the Kits is an identified line item
and is no less than the
<PAGE>
Distributor's cost to produce a Kit (plus a reasonable profit thereon and
an allowance for the Royalty Payment (as defined below) associated
therewith). Examples of items that are not included in the term "Net
Receipts," include but are not limited to, taxes, duties, tariffs,
freight, shipping, support or other charges, but only to the extent such
other items are separately stated on the invoice(s).
3. SECTION 2.1. Section 2.1 of the Agreement is hereby amended by
inserting the words "United States" immediately before the words "Federal
Government" (but only where such phrase first appears) in the first sentence
thereof.
4. SECTION 3. Sections 3.2 and 3.3 of the Agreement are hereby
amended to read in their entirety as follows:
"3.2 GUARANTEED LICENSE FEE. Upon execution of this Agreement,
Customer shall be immediately bound and obligated to pay to Prosoft a
guaranteed, non-refundable license fee in the amount of $1,800,000 (the
""GUARANTEED LICENSE FEE") on such dates as specified on Schedule 2,
which Guaranteed License Fee shall constitute an advance by Customer on
all Royalty Payments owing by Customer to Prosoft under Section 3.1. Such
payments of the Guaranteed License shall be made strictly on the dates
set forth on Schedule 2, and there shall be no grace period for the
payment thereof. Customer's payment of the Guaranteed License Fee shall
be guaranteed, unconditional, irrevocable and non-refundable, regardless
of the number of Kits sold by the Customer to its End Customers and the
amount of the Royalty Payments due to Prosoft. The payment by customer of
the Guaranteed License Fee shall serve as consideration for the grant by
Prosoft to Customer of the right to reproduce Kits from the courseware
Titles set forth on Schedule 1 in accordance with the terms of this
Agreement, and shall be payable notwithstanding the existence of the
Future Titles. Notwithstanding anything to the contrary contained herein,
Customer shall have the right at any time and from time to time to
substitute Future Titles for any of the Courseware Titles set forth on
Schedule 1 (and Prosoft agrees to identify the existence and nature of
such Future Titles upon Customer's request) and such substituted Future
Titles will become "Courseware Titles" for all purposes under this
Agreement, so long as the total number of Courseware Titles subject to
this Agreement does not increase in number, provided, however, that (a)
with respect to uses, sales or distributions by Customer of Courseware to
the Federal Government, Customer shall have the right to substitute
Future Titles in its discretion (including Future Titles relating to
Prosoft's Internet Certification programs provided that the purchaser of
such Kits shall have executed a CIW license agreement in form supplied by
Prosoft) and without any prior Refusal Right (as defined below) of
Prosoft, and (b) with respect to proposed uses, sales or distributions by
Customer of Future Titles to parties other than the Federal Government,
(1) Prosoft shall have the right (the "Refusal Right") to
2
<PAGE>
reasonably approve or refuse such proposed uses, sales or distributions of
Future Titles (but such Refusal Right shall be limited to a maximum for 50%
of the Future Titles selected by Customer) based upon the identity of
Customer's proposed client and the price, license terms and other material
information relating to such transactions, and (2) Customer shall not have
the right to use, sell or distribute courseware relating to Prosoft's
Internet Certification programs to such non-Federal Government parties."
3.3 PAYMENTS DUE. Customer shall provide monthly written reports
indicating the quantities of Kits (and the parts thereof) reproduced and
the Royalty Payments due thereon, and such amounts shall be paid within
thirty (30) days of the end of each month for all reproductions made that
month (or for any prior month(s) for which royalties are calculable),
provided that no Royalty Payments shall be due Prosoft until the total
amount of all Royalty Payments owing exceed the cumulative amount of the
Guaranteed License Fee paid to Prosoft as of the date of determination, and
then only to the extent of the excess All sums are to be paid in United
States dollars. Any payment not received when due shall bear interest at
the rate of 10% per annum, calculated monthly."
5. SECTION 4. Section 4 of the Agreement is hereby amended to read in its
entirety as follows:
"4. GRANT OF EXCLUSIVITY. From the effective date until December 31,
1999 (the "Exclusivity Period), Customer shall have the exclusive right to
resell the Courseware Titles to the Federal Government. Except as expressly
set forth herein, neither (i) Prosoft and its agents, affiliates and
employees, nor (ii) any other third party, (the parties referred to in
clauses (i) and (ii) being referred to herein as the "Restricted Parties"),
shall sell or distribute the Courseware Titles to the Federal Government
during the Exclusivity Period. Prosoft, at its sole cost and expense, shall
take all necessary measures and actions (including the prosecution of
lawsuits and injunctions with the proper courts) to insure that no
Restricted Parties shall sell or distribute the courseware Titles to the
Federal Government during the Exclusivity Period. For purposes hereof, the
term "GOVERNMENT TRAINING EVENT" shall include, but not necessarily be
limited to, seminars, instructor led training, distance learning, and the
like, that any of the Restricted Parties deliver to the Federal Government.
Notwithstanding anything to the contrary contained herein, the Courseware
Titles may be sold or distributed by the Restricted Parties to the Federal
Government in connection with Government Training Events during the
Exclusivity Period, provided that Prosoft pay to Customer a sublicense fee
as follows: (a) in the case where Prosoft directly sells any Government
Training Event to the Federal Government, 25 percent of the invoiced
revenue (not including instructor travel expenses, room rental charges,
equipment rental charges and other costs not associated with instruction
and content (such excluded costs being referred to as "Excluded Costs"))
3
<PAGE>
for such Government Training Event; (b) in the case where a third party
sells any Government Training Event to the Federal Government on behalf of
Prosoft, 30% of the fee (not including Excluded Costs) that Prosoft
receives from such third party; (c) in the case where a third party sells a
single seat for a Government Training Event to a student associated with
the Federal Government, 3 percent of the revenue (not including Excluded
Costs) received by Prosoft arising from such student's participation in
such Government Training Event; and (d) in the case where Prosoft sells any
Courseware Titles or any Kits to the Federal Government where such sale is
not related to a Government Training Event, 75 percent of the invoiced
revenue relating to such sale, provided that Customer shall have given
Prosoft its prior written approval of the terms and conditions of such sale
prior to the consummation thereof. With respect to any amounts owing by
Prosoft to Customer in connection with clauses (a) through (d) above, such
amounts shall be considered "Net Receipts" for purposes of this Agreement,
and Prosoft shall provide Customer with quarterly written reports
describing the Government Training Events that have occurred and the
amounts owing Customer for the three-month periods ending January 31, April
30, July 31 and October 31 (the "Prosoft Quarter-End Dates") during the
term of this Agreement. Such written reports, and the payments owing by
Prosoft for such quarters, shall be delivered to Customer within 30 days of
each of the Prosoft Quarter-End Dates."
6. SECTION 7.4. Section 7.4 of the Agreement shall be amended to read in
its entirety as follows:
"7.4 Changes to Trade-dress. In the event that Prosoft alters its
trade dress, Prosoft shall notify the customer of the details of such
change and Customer shall promptly begin using the new trade-dress in
connection with the Kits."
7. SECTION 10.1. Section 10.1 of the Agreement is hereby amended to read
in its entirety as follows:
"10.1 TERM. This Agreement shall have an initial term from the
effective date through December 31, 1999, as specified on Schedule 2 and
shall then terminate automatically. Customer shall have the right to renew
this Agreement for a two (2) year renewal term (the "RENEWAL TERM") by
providing written notice to Prosoft any time during the last six (6) months
of the existing term. Upon commencement of the Renewal Term, Customer shall
become obligated to pay a Guaranteed License Fee in the amount of
$1,800,000. Such fee shall be paid in equal quarterly installments over the
Renewal Term. Thereafter, the term of this Agreement may renewed on an
annual or multi-annual basis upon mutual written consent of the parties."
8. SECTION 11. Section 11 of the Agreement is hereby amended to read
in its
4
<PAGE>
entirety as follows:
"11. ARBITRATION. All disputes and controversies arising out of, or in
any manner relating to, this Agreement which the parties do not resolve in
good faith within thirty (30) days after either of the parties notifies the
other of its desire to arbitrate such dispute or controversy shall be
settled by arbitration by the American Arbitration Association in
accordance with its then prevailing Commercial Arbitration Rules. Such
arbitration shall be conducted in Orange County, California. The award or
decision made in such arbitration shall be binding upon the parties and
judgment upon the award may be made in any court having jurisdiction. The
prevailing party shall be entitled to recover from the other party all
reasonable costs and expenses of arbitration."
9. SECTION 14. Section 14 of the Agreement is hereby amended to read in
its entirety as follows:
"14. ASSIGNMENT. Except as provided herein, neither party may assign
their rights or obligations under this Agreement. Notwithstanding anything
to the contrary contained herein, either party may assign this Agreement to
a company which acquires all or substantially all of its assets or into
which it is merged, provided that such acquiring company assumes all the
obligations under this Agreement."
Other than as amended hereby, the Agreement shall remain in full force and
effect and the parties hereby ratify and reaffirm the Agreement as so amended.
All references in the Agreement to "the Agreement," "this Agreement," "hereof"
and words of like import shall mean the Agreement as modified by this Amendment.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date set forth above.
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By /s/ Jerrell M. Baird
----------------------------
Name: Jerrell M. Baird
Title: Chairman
STEPS, INC.
a Utah corporation
By
----------------------------
SCOTT BEEBE
Vice President
APPROVED:
5
<PAGE>
NETGATEWAY,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
------------------------------------
Donald M. Corliss, Jr.
President
6
<PAGE>
Schedule 2
Agreement Terms
Guaranteed Royalty: $1,800,000
Payment dates of Guaranteed Royalty:
Upon effective date (October 29, 1997): $150,000
January 15, 1998: $150,000
April 15, 1998: $400,000
July 15, 1998: $500,000
October 1, 1998: $100,000
January 1, 1999: $100,000
April 1, 1999: $200,000
July 1, 1999: $200,000
Initial Agreement Term: Effective date through December 31, 1999
7
<PAGE>
EXHIBIT 10.48
ASSIGNMENT OF LICENSE
THIS ASSIGNMENT OF LICENSE (this "ASSIGNMENT") is made as of the 1st day
of April, 1998, by and between S.T.E.P.S., Inc., a Utah corporation
("ASSIGNOR"), in favor of NetGateway, Inc., a Nevada corporation ("ASSIGNEE").
FOR VALUE RECEIVED, Assignor hereby grants, conveys, transfers and
assigns to Assignee all of Assignor's rights, titles and interests in, to and
under that certain Courseware Reproduction Licensing Agreement dated as of
October 29, 1997 by and between Assignor and Prosoft I-Net Solutions, Inc., a
Nevada corporation ("PROSOFT"), as amended by that certain Amendment No. 1 to
Courseware Reproduction Licensing Agreement dated as of November 4, 1997 by
and between Assignor and Prosoft, together with any and all other amendments,
extensions or renewals thereof (the "CONTRACT").
In exchange for the assignment of the License set forth herein, Assignee
shall pay to Assignor the consideration described on EXHIBIT A hereto, the
terms and conditions of which are incorporated herein by reference, which
EXHIBIT A sets forth the complete understanding between the parties regarding
the consideration to be paid by Assignee to Assignor hereunder.
Assignor hereby agrees to indemnify, protect, defend and hold harmless
Assignee from and against any and all claims, liabilities, losses, costs,
damages or expenses (including, without limitation, reasonable attorneys'
fees and costs) arising out of or resulting from any breach or default by
Assignor under the terms of the License arising on or prior to the date
hereof.
Assignor hereby covenants that it will, at any time and from time to
time, upon written request therefor, at Assignee's sole expense and without
the assumption of any additional liability thereby, execute and deliver to
Assignee, its successors and assigns, any new or confirmatory instruments and
take such further acts as Assignee may reasonably request to fully evidence
the assignment contained herein and to enable Assignee, its successors and
assigns to fully realize and enjoy the rights and interests assigned hereby.
Assignee hereby accepts the foregoing assignment and agrees to assume,
pay, perform and discharge, as and when due, all of the agreements and
obligations of Assignor under the License arising and to be performed or
discharged after the date hereof, and agrees to be bound by all of the terms
and conditions of the License.
The provisions of this Assignment shall be binding upon the successors
and assigns of Assignor and Assignee, and shall inure to the benefit of the
successors and assigns of Assignor and Assignee, respectively.
This Assignment may be executed in any number of counterparts, each of
which
- 1 -
<PAGE>
shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument. The signature page of any counterpart
may be detached therefrom without impairing the legal effect of the
signature(s) thereon and attached to any other counterpart identical thereto
except having additional signature pages attached to it. This Assignment
shall be construed, interpreted and applied in accordance with the laws of
the State of California. This Assignment sets forth the complete
understanding regarding its subject matter and supersedes all prior
agreements, understandings and communications, oral and written, between the
parties regarding the subject matter hereto.
IN WITNESS WHEREOF, Assignor and Assignee have caused their duly
authorized representatives to execute this Assignment as of the date first
above written.
ASSIGNOR: S.T.E.P.S., INC.,
a Utah corporation
By: Scott Beebe
---------------------------
Name: SCOTT BEEBE
Its: Vice President
ASSIGNEE: NETGATEWAY,
a Nevada corporation
By: Donald M. Corliss, Jr.
---------------------------
Name: DONALD M. CORLISS, JR.
Its: President
THE ASSIGNMENT SET FORTH HEREIN IS HEREBY ACKNOWLEDGED, ACCEPTED AND AGREED
TO:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada Corporation
By:
-------------------------------
Name: JERRILL M. BAIRD
Its: Chief Executive Officer
- 2 -
<PAGE>
EXHIBIT A
CONSIDERATION
As consideration for the assignment of the Contract set forth in
the attached Assignment, Assignee hereby grants, conveys and transfers to
Assignor one million (1,000,000) shares of common stock (the "SECURITIES") of
Assignee, subject to the terms and conditions set forth in this EXHIBIT A.
For purposes hereof, Assignor shall be referred to as the "HOLDER", and
Assignee shall be referred to as the "ISSUER".
1. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS AND COVENANTS OF THE
HOLDER.
1.1 PURCHASE FOR HOLDER'S ACCOUNT. The Holder represents and
warrants to the Issuer that the Holder will hold the Securities for its own
account, with no present intention of distributing or reselling the
Securities or any part thereof, and that the Holder is prepared to bear the
economic risk of retaining the Securities for an indefinite period.
1.2 RESTRICTED SECURITIES. The Holder understands, agrees and
acknowledges that:
(a) The transfer of the Securities has not been registered
under the Securities Act of 1933, as amended and may be amended from time to
time (the "Act"), and the Securities must be held indefinitely unless the
Securities are subsequently registered under the Act or an exemption from
such registration is available, and the Issuer is under no obligation to
register the Securities. The Holder agrees that the Securities will not be
sold or offered for sale without registration under said Act or the
availability of an exemption therefrom, nor in violation of any other law of
the United States of America or any state. The Holder is familiar with the
provisions of Rules 701 and 144, each promulgated under the Act, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof, in a non-public offering,
subject to the satisfaction of certain conditions;
(b) The share certificate representing the Securities will be
stamped with the legends specified in Section 1.3 hereof; and
(c) The Issuer will make a notation in its records of the
aforementioned restrictions on transfer and legends.
1.3 LEGENDS. All certificates representing any of the Securities
are subject to the provisions of this Assignment and shall have endorsed
thereon the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AS SET FORTH IN AN ASSIGNMENT OF CONTRACTS
DATED MAY __, 1998 BETWEEN THE ISSUER AND THE REGISTERED HOLDER,
COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE ISSUER.
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<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
0F 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT SAID REGISTRATION IS NOT REQUIRED.
In addition, the certificates shall bear any other legend which the
Issuer deems to be necessary or appropriate under the securities laws of any
state.
1.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting
the restrictions set forth above, the Holder further agrees that in no event
shall it make any disposition of all or any portion of the Securities unless
and until:
(a) The Holder shall have notified the Issuer of the proposed
disposition and shall have furnished the Issuer with a detailed statement of
the circumstances surrounding the proposed disposition; and
(b) If requested by the Issuer, the Issuer shall have
received, at the Issuer's expense, an opinion of counsel to the Issuer to the
effect that such disposition will not require registration of such Securities
under the Act or qualification under any applicable state securities laws.
1.5 VIOLATION OF RESTRICTIONS. With respect to any Securities which
shall have been sold or transferred in violation of any of the provisions set
forth in this Assignment, the Issuer shall not be required (i) to reflect
such transfer on its books, or (ii) to treat as owner of such Securities or
to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Securities shall have been so transferred.
1.6 MARKET STAND-OFF. The Holder agrees that, in connection with an
initial public offering by the Issuer of its equity securities pursuant to a
Registration Statement filed under the Act, the Holder will not sell, make
any short sale or loan, hypothecate, pledge, grant any option for the
purchase of or otherwise dispose of any Securities without the prior written
consent of the Issuer and its underwriters, for a period not to exceed one
hundred eighty (180) days from the effective date of such registration if
requested by the Issuer or such underwriters.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ASSIGNEE
2.1 STOCK SPLITS. If, from time to time: (i) there is any stock
dividend or liquidating dividend of cash and/or property, stock split or
other change in the character or amount of any of the outstanding securities
of the Issuer; or (ii) there is any consolidation, merger or sale of all, or
substantially all, of the assets of the Issuer, then, and in such event, all
new, substituted or additional securities or other property to which the
Holder is entitled by reason of its ownership of the Securities shall be
immediately subject to the terms of this Assignment and be included in the
term "Securities" for all purposes and with the same force and effect as the
Securities of Common Stock to be issued hereunder.
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<PAGE>
2.2 REPLACEMENT OF INSTRUMENTS. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing
any of the Securities, and (a) in the case of loss, theft or destruction,
upon receipt by the Issuer of indemnity reasonably satisfactory to it
(provided that, if the owner of the same is a commercial bank or an
institutional lender or investor, its own agreement of indemnity shall be
deemed to be satisfactory), or (b) in the case of mutilation, upon surrender
and cancellation thereof, the Issuer, at its expense, will execute, register
and deliver, in lieu thereof, a new certificate or instrument for (or
covering the purchase of) an equal number of Securities.
2.3 REPRESENTATIONS AND WARRANTIES. In connection with the
issuance of the Securities to the Holder, the Issuer hereby represents and
warrants to, and covenants with, the Holder as follows:
(a) The Issuer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. Neither
the Issuer nor any of its shareholders has adopted or taken any action in
contemplation of any plan of liquidation or dissolution of the Issuer. The
Issuer has provided the Holder with true, complete and correct copies of the
Articles of Incorporation and Bylaws of the Issuer as in effect on the date
hereof.
(b) The Issuer has the requisite corporate power and
authority to execute, deliver and carry out this Assignment, and all other
instruments, documents and agreements contemplated or required by the
provisions of this Assignment to be executed, delivered or carried out by the
Issuer. The Issuer has all requisite corporate power and authority under the
laws of the jurisdiction of its incorporation to own and operate its
properties and to carry on its business as now conducted and as presently
proposed to be conducted. The Board of Directors of the Issuer have taken all
necessary corporate action to approve this Assignment, and to authorize the
execution, delivery and performance of this Assignment by the Issuer, the
issuance by the Issuer of the Securities and the consummation of the
transactions contemplated hereby. This Assignment has been duly and properly
executed and delivered by the Issuer and constitutes the legally valid and
binding obligation of the Issuer, enforceable against it in accordance with
its terms.
- 5 -
<PAGE>
SUBLICENSE AGREEMENT
This Sublicense Agreement (the "Agreement") is entered into as of April
1, 1998 (the "Effective Date"), by and between S.T.E.P.S., Inc., a Utah
corporation ("STEPS"), and NetGateway, a Nevada corporation ("NetGateway").
WHEREAS, STEPS and Prosoft I-Net Solutions, Inc., a Nevada corporation
("Prosoft") have entered into the Courseware Reproduction License Agreement
dated October 29, 1997, as amended pursuant to the Amendment No. 1 to
Courseware Reproduction License Agreement dated as of November 4, 1997 and
the Amendment No. 2 to Courseware Reproduction License Agreement dated as of
January 20, 1998 (such agreement, together with these amendments and any
other existing or future amendments, replacements, modifications or
supplements thereof, being referred to herein as the "License"); and
WHEREAS, STEPS and NetGateway wish to enter into an agreement whereby
STEPS will sublicense its rights to NetGateway under the License to
NetGateway.
NOW, THEREFORE, in consideration of the terms and conditions set forth
below and other sufficient consideration, the parties hereto agree as follows:
1. STEPS hereby grants and assigns to NetGateway a sublicense to all of
its rights and interests under the License, including, without limitation,
its rights thereunder with respect to the Courseware Titles (as defined in
the License).
2. The term of this Agreement shall be from the date hereof until the
date that the License is terminated in accordance with its terms.
3. As total consideration for the grant of the sublicense set forth
herein, NetGateway shall pay to STEPS, on or before the Payment Dates (as
defined below), all amounts owing and payable by STEPS to Prosoft on and
after the Effective Date under the License. As used herein, a "Payment Date"
shall mean 2 business dates before any day that STEPS is required to make a
payment to Prosoft under the License.
4. Prosoft, by signing the signature block set forth below, hereby
approves the grant of the sublicense upon the terms set forth herein,
provided that nothing in this Agreement shall relieve STEPS of any of its
obligations under the License. Prosoft and STEPS agree to provide NetGateway
with any written notification sent by either such party to the other party
under the License to NetGateway's office located at 300 Oceangate, 5th Floor,
Long Beach, CA 90802, Attention: Donald M. Corliss, Jr. Prosoft, STEPS and
NetGateway further agree that NetGateway shall have the right to add its
trade dress and/or branding to the Courseware (on either an exclusive basis
or on a co-branded basis with Prosoft, in NetGateway's discretion), and
NetGateway shall have the right to sell site-licenses to end-user customers
with respect to the Courseware (in which such customer pays a flat-fee and is
permitted to reproduce the Courseware in a manner that is not inconsistent
with the terms of the License), provided that Prosoft shall have approved
such trade dress or site-licensing, as the case may be (whether on an
exclusive or co-branded basis), which approval shall not be unreasonably
withheld.
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the conflict of laws
provisions thereof.
6. This Agreement supersedes all prior agreements between the parties
regarding the subject matter hereof and sets forth the entire agreement of
the parties concerning such subject matter. The
<PAGE>
7. This Agreement may be executed in one or more counterparts, which
together will constitute one agreement.
8. STEPS and NetGateway agree that all disputes and controversies
arising out of, or in any manner relating to, this Agreement which the
parties do not resolve in good faith within thirty (30) days after either of
the parties notifies the other of its desire to arbitrate such dispute or
controversy shall be settled by arbitration by the American Arbitration
Association in accordance with its then prevailing Commercial Arbitration
Rules. Such arbitration shall be conducted in Orange County, California. The
award or decision made in such arbitration shall be binding upon the parties
and judgment upon the award may be made in any court having jurisdiction. The
prevailing party shall be entitled to recover from the other party all
reasonable costs and expenses of arbitration.
9. NetGateway shall have the right to approve in writing any future
amendments, modifications, supplements or extensions of the License between
Prosoft and STEPS.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by duly authorized representatives as of the date set forth above.
S.T.E.P.S., INC.,
a Utah corporation
Steps, Inc.
By: /s/ R. Scott Beebe VP
-------------------------------
Name: R. Scott Beebe
Title: Vice President
NETGATEWAY,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
-------------------------------
Name: Donald M. Corliss, Jr.
Title: President
AGREED TO AND ACKNOWLEDGED:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By: /s/ Jerrill M. Baird
----------------------------------
Name: Jerrill M. Baird
Title: Chairman
<PAGE>
PROSOFT I-NET SOLUTIONS, INC.
COURSEWARE REPRODUCTION LICENSE AGREEMENT
This Courseware Reproduction License Agreement (this "Agreement") is made
and entered into as of the 20th day of January, 1997 (the "effective date"),
by and between Prosoft I-Net Solutions, Inc., a Nevada corporation having its
principal place of business at 2333 North Broadway, Suite 300, Santa Ana,
California ("Prosoft"), and Training Resources International, Inc., a Nevada
corporation having its principal place of business at 42690 Rio Nedo, Suite
E, Temecula, California 92590 ("Customer").
R E C I T A L S
WHEREAS, Prosoft is engaged in the development, distribution and sale of
certain Internet, intranet and other computer training products and services,
as more particularly described in Prosoft's catalogues and other written and
electronic materials (collectively, the "Training Products");
WHEREAS, in conjunction with the development, distribution and sale of
such Training Products Prosoft has developed specific written and electronic
course materials (the "Courseware Titles"), which Courseware Titles are set
forth on SCHEDULE 1 to this Agreement;
WHEREAS, Customer wishes to purchase the Courseware Titles from Prosoft
in electronic format for the purpose of reproducing and packaging the
Courseware Titles for distribution and resale to its customers, including
without limitation public and private elementary, secondary and
post-secondary educational institutions, under the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby agree as follows:
1. DEFINITIONS. When used in this Agreement, the following terms
shall have the respective meanings indicated:
"Customer Resale" shall mean the reproduction, manufacture, and
packaging of the Courseware Titles into the Kits for distribution and resale
to the Educational Institutions, provided however that Customer Resale shall
not include the licensing or sublicensing of the Courseware Titles without
the prior written consent of Prosoft (which shall not be unreasonably
withheld) or any other use of the Courseware Titles otherwise prohibited
under the terms of this Agreement.
"Educational Institutions" shall mean public and private
elementary, secondary and post-secondary educational institutions and all
agencies, departments, divisions, bureaus and branches thereof.
"Electronic Courseware Title" shall mean a Courseware Title that
is reproduced on a CD-ROM containing substantially the same information and
lessons as the Paper-based Courseware Title, and can be transmitted
electronically over the internet or other computer networks in connection
with distance learning.
"End Customer" shall mean any client of Customer that purchases
the Kits.
"Exercise Disk" shall mean a 3-1/2 inch floppy disk containing
classroom exercises for a Courseware Title.
"Kit" shall mean any reproduction of any Courseware Title that
includes one, two or three of the following constituent elements, and is
packaged and sold as a single unit: (a) a Paper-based Courseware Title: (b)
an Electronic Courseware Title: (c) an Exercise Disk. For purposes hereof,
each element described in clauses (a) through (c) of the previous sentence
shall be referred to as a "part thereof" with respect to each Kit.
"Net Receipts" shall mean all gross revenue received from the
sales, licensing or other distribution of the Kits, provided that "Net
Receipts" does not include any revenue not directly related to the sale or
licensing of the Kits, including but not limited to taxes, duties, tariffs,
freight, shipping, support or other charges, but only to the extent such
other items are separately stated on the invoice(s).
"Paper-based Courseware Title" shall mean a Courseware Title that
is reproduced into a bound paper book.
<PAGE>
2. GRANT OF REPRODUCTION RIGHTS.
2.1 Grant of Reproduction License. Subject to the terms and
conditions of this Agreement, Prosoft hereby authorizes Customer to reproduce
and distribute the Courseware Titles exclusively for Customer Resale.
Customer may not license or sublicense the Courseware Titles to any third
parties in any form without the prior written consent of Prosoft (which shall
not be unreasonably withheld). Customer shall have the right to sell the
Kits, or any part thereof, in any combination of elements that it deems
appropriate (for example, without limiting the forgoing, Customer may package
and sell the Electronic Courseware Title alone, or in combination with a
Paper-based Courseware Title and/or an Exercise Disk). Prosoft reserves all
rights not expressly granted to Customer in this Agreement.
2.2 Reproduction and Manufacture Procedure. Upon the execution
of this Agreement, Prosoft will deliver the Courseware Titles to Customer in
electronic format on "Gold Disk(s)" which will allow Customer to reproduce
copies of the Courseware Titles into individual Kits. Customer will ensure
that all Kits contain adequate copyright notices so as to protect Prosoft's
copyright interest. Customer will keep accurate records of all copies
created in accordance with Section 3.5 of this Agreement. Prosoft shall have
no responsibility for and shall bear no cost associated with the
reproduction, manufacture, packaging, shipping, distribution, marketing or
resale of the Kits.
2.3 Title to Prosoft Products. Subject to the rights granted
to Customer herein, all right, title and interest in and to the Courseware
Titles, or any element thereof constituting the Kits, including its text,
logic structure and presentation, and to any improvements, enhancements,
updates or upgrades to them, including the concepts and technology inherent
in the Courseware Titles, are, and at all times shall remain, the sole and
exclusive property of Prosoft. Nothing contained in this Agreement shall
directly or indirectly be construed to assign or grant to Customer any right,
title or interest in or to the trademarks, copyrights, patents or trade
secrets of Prosoft or any ownership rights in or to the Courseware Titles.
3. LICENSE FEES.
3.1 Royalty Payments. Customer shall pay to Prosoft twenty
percent (20%) of Customer's Net Receipts from Customer's distribution of the
Kits (such amounts being referred to herein as the "Royalty Payments"). Such
Royalty Payments shall be payable in accordance with Section 3.3 hereof.
3.2 Guaranteed License Fee. Upon execution of this Agreement,
Customer shall be immediately bound and obligated to pay to Prosoft a
guaranteed, non-refundable license fee in the amount of $1,600,000 (the
"Guaranteed License Fee") on such dates as specified on SCHEDULE 2, which
Guaranteed License Fee shall constitute an advance by Customer on all Royalty
Payments owing by Customer to Prosoft under Section 3.1. Customer's payment
of the Guaranteed License Fee shall be guaranteed, unconditional, irrevocable
and non-refundable, regardless of the number of Kits sold by the Customer to
its End Customers and the amount of the Royalty Payments due to Prosoft.
The payment by Customer of the Guaranteed License Fee shall serve as
consideration for the grant by Prosoft to Customer of the right to reproduce
Kits from the Courseware Titles set forth on SCHEDULE 1 in accordance with
the terms of this Agreement, and shall be payable notwithstanding the future
production of other courseware titles not set forth on SCHEDULE 1 (the
"Future Titles") by Prosoft. Prosoft shall make such Future Titles available
to Customer for reproduction and distribution as such Future Titles are
completed from time to time.
3.3 Payments Due. Customer shall provide monthly written
reports indicating the quantities of Kits (and the parts thereof) reproduced
and the Royalty Payments due thereon, and such amounts shall be paid within
thirty (30) days of the end of each month for all reproductions made that
month (or for any prior month(s) for which royalties are calculable),
provided that no Royalty Payments shall be due Prosoft in any month where the
cumulative amounts paid by Customer in respect of the Guaranteed License Fee
exceed the cumulative amounts paid and owing by Customer in respect of the
Royalty Payments. All sums are to be paid in United States dollars. Any
payment not received when due shall bear interest at the rate of (10% per
annum, calculated monthly.
3.4 Records. Customer shall keep true and accurate records of
all Kits (and parts thereof) reproduced in accordance with generally accepted
accounting principles, consistently applied. No more frequently than twice a
year, Prosoft shall have the right (upon two business days prior notice) to
have a certified public accountant selected by Prosoft audit the books of
customer to determine whether all royalties due have been paid. Prosoft
shall pay the cost of such investigation, except that should the accountant
find that the royalties for a period investigated have been underpaid by
five percent (5%) or more, the entire cost of the investigation shall be
borne by Customer. Customer shall immediately pay to Prosoft any amounts
discovered to be owed as a result of the investigation, plus interest at the
rate of ten percent (10%) per annum, calculated monthly for each month the
amount due was outstanding.
4. RESELLER AGREEMENT: GRANT OF EXCLUSIVITY.
2
<PAGE>
4.1 Reseller Agreement. Customer, upon execution of the
Training Resale Agreement substantially in the form of Exhibit A hereto (the
"Reseller Agreement"), shall have the right to become a non-exclusive
reseller of Prosoft's instructor led training to Educational Institutions,
upon the terms and conditions set forth in the Reseller Agreement.
4.2 Exclusivity. From the effective date until the Termination
Date (as defined below), Customer shall have the exclusive right to resell
the Courseware Titles to the Educational Institutions. In the event that
Customer elects the Renewal Option in accordance with Section 10 hereof, then
Customer shall have the exclusive right to resell the Courseware Titles to
the Educational Institutions through January 15, 2008. During the term of
this Agreement, Customer shall receive 25% of any revenues received by
Prosoft relating to sales by Prosoft's internal sales staff of instructor-led
training, distance learning or seminar-style training to the Educational
Institutions, as compensation for the courseware component of such training
engagements (this same provision is set forth in Section 1(b) of the Reseller
Agreement, and the 25% commission described in this Section 4.2 is not
cumulative or in addition to the 25% commission described in Section 1(b) of
the Reseller Agreement).
5. REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
5.1 Customer represents and warrants that it has the authority
to enter into this Agreement, and to carry out its obligations hereunder, and
that the performance of this Agreement shall not cause a breach of any other
obligation of Customer.
5.2 Each party represents and warrants as follows: (a) such
party has full power and authority to execute, deliver and perform its
obligations under this Agreement; (b) such party is financially solvent and
has the sufficient liquidity and financial wherewithal to perform its
obligations under this Agreement; (c) there are no actions, proceedings or
investigations, pending or, to the best of the such party's knowledge,
threatened against such party which may in any manner whatsoever materially
affect the enforceability of this Agreement; and (d) the execution, delivery
and performance of this Agreement will not constitute a breach or default
under any agreement, law or court order under which such party is a party or
may be bound.
6. COPYRIGHT OBLIGATION. Customer covenants and warrants that the
copyright notices included in the "Gold Disk" copy of the Courseware Titles
and set forth on SCHEDULE 3 hereto shall be reproduced with each Kit (and
each part thereof). Customer agrees that each copy of the Kits (and each part
thereof) shall also include a notice stating that such Kit (and each part
thereof) were "Reprinted with permission of Prosoft I-Net Solutions, Inc."
If Customer believes that any of Prosoft's contractual, statutory,
intellectual property or other rights are being violated, it agrees to
promptly notify Prosoft and cooperation in any investigation.
7. TRADEMARKS; TRADENAMES AND COPYRIGHTS.
7.1 Acknowledgments of Rights. Customer acknowledges that
Prosoft is the owner of all right, title and interest in and to the name
Prosoft and the trademarks or trademark applications listed on SCHEDULE 3
hereto in connection with Internet, intranet and other computer training and
services (the "Trademarks"), and Customer agrees not to adopt or use the
Trademarks in any manner whatsoever except as expressly provided in this
Agreement. Customer further acknowledges that Prosoft is the owner of all
right, title and interest in and to all copyrights of Prosoft relating to the
Courseware Titles (the "Copyrights"), and Customer agrees not to reproduce
any material subject to any such Copyright except as expressly provided in
this Agreement.
7.2 Use of Trademarks in Connection with Courseware Titles.
Customer agrees to use the Trademarks only within the Courseware Titles or to
identify the authorized use of the Courseware Titles. Customer's use of the
Trademarks shall at all times be in accordance with such styles and together
with such Trademark notices as Prosoft may require. Customer shall not
combine the Trademarks with any other names or marks, and agrees that this
Agreement does not constitute any conveyance of any right, title or interest
in or to any Trademarks, except for the permissive uses provided herein.
7.3 Infringements. Customer shall promptly notify Prosoft of
any and all infringements or attempted infringements of any of Prosoft's
Trademarks that may come to its attention, and shall assist Prosoft at
Prosoft's expense in taking such action against such infringers as Prosoft,
in its discretion, may elect.
8. WARRANTY.
8.1 Warranty on Courseware Titles. Prosoft warrants that the
Courseware Titles as delivered to Customer will conform in all material
respects to the written version thereof at the at the time of delivery to
Customer. Prosoft makes no warranty to the end-users of the Courseware
Titles, any such warranty to be made and honored by Customer. NO
3
<PAGE>
OTHER WARRANTY, OR CONDITION, EXPRESSED OR IMPLIED, INCLUDING WARRANTIES OR
CONDITIONS RELATED TO FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY,
ARE GRANTED TO CUSTOMER OR END-USERS, AND ALL SUCH WARRANTIES AND CONDITIONS
ARE EXPRESSLY EXCLUDED.
8.2 Defective Courseware Titles. Should the Courseware Titles
fail to be as warranted above, Customer should return the Courseware Titles
to Prosoft within 30 days of delivery thereof. Prosoft will then, at its
sole option, correct or replace the Courseware Titles such that the
Courseware Titles comply with Section 8.1.
8.3 THE SECTION 8 CONTAINS THE EXCLUSIVE REPRESENTATION,
WARRANTIES AND ASSOCIATED REMEDIES FOR ANY CLAIM ASSOCIATED WITH THE
PERFORMANCE OF THE COURSEWARE TITLES, REGARDLESS OF WHETHER SUCH CLAIM IS
MADE IN CONTRACT OR TORT.
9. LIABILITY AND INDEMNIFICATION.
9.1 Limitations on Liability. CUSTOMER AGREES THAT, REGARDLESS
OF THE FORM OF ANY CLAIM, CUSTOMER'S SOLE REMEDY AND PROSOFT'S SOLE
OBLIGATION SHALL BE GOVERNED BY THIS AGREEMENT, AND IN NO EVENT SHALL
PROSOFT'S LIABILITY EXCEED THE LICENSE FEES ACTUALLY PAID FOR THE COURSEWARE
TITLES THAT GAVE RISE TO THE CLAIM DURING THE 12 MONTH PERIOD IMMEDIATELY
PRECEDING THE CLAIM, PROVIDED THAT THE ABOVE LIMITATION SHALL NOT APPLY TO
CLAIMS FOR INFRINGEMENT PURSUANT TO SECTION 9.2 OF THIS AGREEMENT. CUSTOMER
EXPRESSLY AGREES THAT IN NO EVENT SHALL PROSOFT BE LIABLE FOR ANY
CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES ARISING FROM SECTION 9.2.
BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE OR ANY OTHER LEGAL THEORY,
WHETHER IN TORT OR CONTRACT, EVEN IF PROSOFT HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING, INCLUDING WITHOUT LIMITATION DAMAGES
FROM INTERRUPTION OF BUSINESS, LOSS OF PROFITS OR BUSINESS OPPORTUNITIES,
LOSS OF USE OF SOFTWARE, LOSS OF DATA, COST OF RECREATING DATA, COST OF
CAPITAL, COST OF ANY SUBSTITUTE SOFTWARE, OR LOSSES CAUSED BY DELAY. PROSOFT
SHALL NOT BE RESPONSIBLE FOR ANY DAMAGES OR EXPENSES RESULTING FROM
ALTERATION OR UNAUTHORIZED USE OF THE COURSEWARE TITLES, OR FROM THE
UNINTENDED AND UNFORESEEN RESULTS OBTAINED BY CUSTOMER RESULTING FROM SUCH
USE. SHOULD ANY LAW UNDER WHICH THIS AGREEMENT IS INTERPRETED PROHIBIT
EXCLUSION OF CERTAIN CONDITIONS OR WARRANTIES. THE REQUIRED CONDITIONS OR
WARRANTIES SHALL BE DEEMED INCLUDED. THE LIABILITY OF PROSOFT FOR ANY BREACH
OF SUCH TERM, CONDITION OR WARRANTY SHALL BE LIMITED, AT THE OPTION OF
PROSOFT, TO ANY ONE OR MORE OF THE FOLLOWING; (A) REPLACEMENT OF THE
COURSEWARE TITLES WITH FUNCTIONALLY COMPARABLE MATERIALS, OR (B) SUPPLEMENT,
MODIFY OR REVISE THE COURSEWARE TITLES TO MEET THE REQUIRED WARRANTY OR
CONDITION.
9.2 Copyright Infringement. Prosoft shall, at its cost, defend
or, at its sole option, settle any claim or suit brought against Customer on
the issue that the Courseware Titles infringe a United States copyright,
provided that Customer (a) notifies Prosoft promptly in writing of any such
claim or suit; (b) gives Prosoft full information and assistance in settling
and/or defending the suit; and (c) gives Prosoft full authority and control
of the defense and/or settlement of any such action. Prosoft shall not be
liable for any costs or expenses incurred (a) by Customer without Prosoft's
prior written authorization; (b) for any claim based on the use of a
combination of the Courseware Titles with any other property not provided by
Prosoft, (c) for any claim based on Customer's modification of the Courseware
Titles; or (d) from use of other than the latest available version of the
Courseware Titles.
9.3 If the Courseware Titles become subject to a claim of
infringement for which Prosoft may become liable, Prosoft may at its option
(a) obtain the right to continue using the Courseware Titles; or (b) replace
or modify the Courseware Titles to make them non-infringing, so long as the
replacement or modification meets substantially similar specifications.
EXCEPT FOR THESE REMEDIES, PROSOFT SHALL HAVE NO LIABILITY TO CUSTOMER OR ITS
CUSTOMERS FOR COPYRIGHT, PATENT, TRADE SECRET OR ANY OTHER CLAIM ASSOCIATED
WITH AN INFRINGEMENT OF A PROPRIETARY RIGHT, AND SHALL IN NO INSTANCE HAVE
ANY LIABILITY TO CUSTOMER FOR DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES FROM
INFRINGEMENT.
10. TERM AND TERMINATION.
10.1 Term. This Agreement shall have an initial term from the
effective date through January 31, 2003 (the "Termination Date"), as
specified on Schedule 2 and shall then terminate automatically, provided that
Customer may, upon (a) the delivery to Prosoft of written notice within 60
days of the Termination Date and (b) the payment of an additional one-time
Guaranteed License Fee of $41,000,000 within 20 days of the Termination Date
(the "Renewal License Fee"), elect to have
4
<PAGE>
the Agreement continue in effect from February 1, 2003 until January 31,
2008 (such option being referred to as the "Renewal Option" and January 31,
2008 being referred to as the "Extended Termination Date"). In the event
that customer elects the Renewal Option, then the Renewal License Fee shall
be treated as the Guaranteed License Fee for purposes of Section 3.2 hereof,
and all other terms and conditions of this Agreement shall remain the same
for the extended term.
10.2 Termination for Cause. Prosoft may terminate this
Agreement upon the happening of any of the following events if Customer fails
to cure the problem within ten (10) days of notice of an intent to cancel if
not cured:
a. Customer fails to make any payment when due; or
b. Customer breaches any representations, warranty, or any
material term of this Agreement or fails to perform any duty required
hereunder; or
c. Customer fails to comply with any legal prerequisites,
formalities and/or material government regulations applicable to performance
of its obligations under this Agreement.
10.3 Termination by Customer. Customer may terminate this
Agreement upon the happening of one of the following events if Prosoft fails
to cure such event within thirty (30) days' notice of an intent to cancel if
not cured:
a. Prosoft breaches any warranty or material term of this
Agreement or fails to perform any duty required hereunder; or
b. Prosoft fails to comply with any legal prerequisites,
formalities, and/or material government regulations applicable to performance
of its obligations under this Agreement.
10.4 Effect of Termination. Customer agrees that upon
expiration or termination of this Agreement under this Section 10, Prosoft is
discharged from any further obligations under this Agreement and Customer's
rights to reproduce and distribute the Courseware Titles and to use Prosoft's
tradename and trademarks as provided in this Agreement shall cease as of the
date of such expiration or termination except as follows: Within thirty (30)
days of the delivery by Prosoft or receipt by Prosoft of a notice of
termination at the end of any term or expiration, or within ten (10) days
after automatic termination or termination for cause, Customer shall: (1)
return to Prosoft all Gold Disk(s); and (2) destroy all copies of the
Courseware Titles or Kits not previously distributed, in whatever form they
exist, including deleting all copies from any electronic memories.
Notwithstanding the foregoing, with respect to any copies of the Courseware
Titles or Kits that have been distributed for Customer Resale prior to the
termination date. Customer may grant the approved license to use the
Courseware Titles or Kits to end-users of these specific copies of the
Courseware Titles or Kits; provided, however, that this permission does not
allow Customer, after the date of termination, to make further reproductions
of the Courseware Titles or Kits or to fill requests for copies orders that
have not been filled on the date of termination or that are received after
that date. All licenses for Customer Resale previously given, provided they
were in accordance with the terms of this Agreement, shall continue in effect
after termination or expiration of the Agreement.
All requirements of indemnification, payment, and terms related to use
or protection of intellectual property or confidential information, and
provisions related to venue and choice of laws, shall survive termination or
expiration of this Agreement.
11. ARBITRATION. All disputes and controversies arising out of, or
in any manner relating to, this Agreement which the parties do not resolve in
good faith within thirty (30) days after either of the parties notifies the
other of its desire to arbitrate such dispute or controversy shall be settled
by arbitration by the American Arbitration Association in accordance with its
then prevailing Commercial Arbitration Rules. Such arbitration shall be
conducted in Orange County, California. The award or decision made in such
arbitration shall be binding on the parties and judgment upon the award may
be made in any court having jurisdiction. The prevailing party shall be
entitled to recover from the other party all reasonable costs and expenses of
arbitration.
12. NO AGENCY, REPRESENTATION OR JOINT VENUE. It is expressly
understood that Customer and Prosoft are business entities independent of one
another. Neither the making of this Agreement nor the performance of any
part of its terms shall be construed to constitute Customer as an agent or
representative of Prosoft for any purpose. Nor shall this Agreement be
deemed to establish a joint venture or partnership.
13. FORCE MAJEURE. Failure of Prosoft or Customer to perform its
obligations hereunder, or a portion thereof if occasioned in whole or in part
by any act of God, any act of fire, explosion, perils of sea, flood, war, or
any action of any
5
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governmental authority shall excuse the non-performing party from performing
the non-performing party's obligations to perform shall be suspended for the
duration of such excusing event.
14. ASSIGNMENT. The rights and obligations under this Agreement
shall be binding upon each party and its successors and assigns, provided
that the assignment by Customer of its obligations under this Agreement shall
be subject to the written approval by Prosoft, which shall not be
unreasonably withheld or delayed.
15. HEADINGS. The headings contained in this Agreement are for
convenience only and should not be construed to limit or expand any terms
otherwise provided.
16. NOTICES. Any notice made in relation to this Agreement shall
be sent to the addresses set forth above, or such other address as the
intended recipient has previously designated by written notice. The notice
shall be sent by a prepaid courier service which requires signature for
receipt or by facsimile.
17. LEGAL REVIEW. It is acknowledged that this Agreement was
initially prepared by Prosoft. Both parties, however, have had an
opportunity for legal review of all terms. The parties therefore agree that,
in interpreting any issues which may arise, any rules of construction related
to who prepared the Agreement shall be inapplicable, each party having
contributed or having had the opportunity to contribute to clarify any issue.
18. PARTIAL ILLEGALITY. It is agreed that if any provision, or part
of a provision, of this Agreement is held to be invalid or unenforceable
under any applicable statute or rule of law, then the parties shall use their
best efforts to replace the invalid or unenforceable provision by a provision
that, to the extent permitted by applicable law, achieves the purposes
intended under the original provision and to allow the parties to have the
intended benefit of their bargain. If it cannot be so reformed it shall be
omitted. In any such instance, the balance of this Agreement shall remain
valid and unchanged and in full force and effect.
19. WAIVER OF COMPLIANCE. Any failure by either party to enforce at
any time any term or condition under this Agreement shall not be considered a
waiver of that party's right thereafter to enforce each and every term and
condition of this Agreement.
20. APPLICABLE LAW. The parties agree that this Agreement shall be
governed and construed by the laws of the state of California, and that no
conflict-of-laws provision shall be invoked to permit the laws of any other
state or jurisdiction.
21. AMENDMENTS. All amendments to or changes in this Agreement must
be in writing executed by both parties.
22. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties on the subject matter above,
and supersedes any and all prior agreements (written and oral) between the
parties.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original and all of which shall
constitute one and the same agreement with the same effect as if all parties
had signed the same signature page. Any signature page of this Agreement may
be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto but having
attached to it one or more additional signature pages. Each of the parties
hereto agrees that it will be bound by its own telecopied signature and that
it accepts telecopied signatures of the other parties to this Agreement, with
original signatures to be forwarded to the other party as promptly as
possible.
24. VOCATIONAL BUSINESS. The parties further agree as follows:
24.1 Customer is hereby granted a nonexclusive license under
Prosoft's post secondary status and, once Prosoft has been accredited, the
accreditation relating to Prosoft's distance learning business. Prosoft will
use its best efforts to complete the accreditation process with respect to
distance learning and shall keep Customer apprised as to its progress in this
regard. Customer shall have a nonexclusive license under this accreditation,
along with Prosoft, for so long as Prosoft operates its vocational division
(the "Vocational Division"), which is funded by Title III monies and trains
unemployed workers. Customer is hereby granted an irrevocable option (the
"Option") to acquire all of Prosoft's right, title and interest under the post
secondary status and the accreditation status and/or process (if
accreditation has not yet been attained), which option shall be immediately
exercisable by Customer at an exercise price of $1000.00 upon written notice
to Prosoft at such time as Prosoft (a) discontinues operation of the
Vocational Division, or (b) is acquired by a third party.
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24.2 Prior to the exercise of the Option, Prosoft shall
maintain its post secondary status and distance learning accreditation in
good standing.
24.3 All revenues generated by Customer under or in respect
of the Vocational Division will be initially paid to and recognized by
Prosoft. Customer will subsequently invoice Prosoft for all amounts owing to
it.
(signature page follows)
7
<PAGE>
In Witness Whereof, the parties hereto have duly executed this Agreement
on the date first above written.
PROSOFT: CUSTOMER:
PROSOFT I-NET SOLUTIONS, INC. TRAINING RESOURCES INTERNATIONAL, INC.,
a Nevada corporation a Nevada corporation
By: /s/ Donald Danks By: /s/ Michael Kahlid
-------------------------- --------------------------
Donald Danks Michael Kahlid
Senior Vice President President
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Schedule I
Courseware Titles
PAGER-BASED COURSEWARE TITLES
Basic Internet Business Skills
Advanced Internet Business Skills
Mastering the Net With Netscape Communicator
Empowering the Enterprise With Microsoft Internet Explorer 4.0
Internet Security for Business Applications
Internet/Intranet Business Applications Using Office 97
Gaining Market Intelligence Using the World Wide Web
Introduction to HTML Authoring
Advanced HTML Authoring
Internet/Intranet Publishing Using Microsoft FrontPage 97
Web Publishing Using HTML and FrontPage 97
Microsoft Web Master Boot Camp
Visual Site Design and Management Using NetObjects FUSION 2.0
Introduction to VRML Authoring and Interactive 3D Modeling For the Web
Introduction to JavaScript Programming
Advanced JavaScript Programming
Introduction to Database Publishing Using Visual InterDev
Fundamentals of CGI Programming Using Perl
Introduction to ActiveX Technology and Tools
Deploying Active Server Pages
Developing Java Applets and ActiveX Controls Using Visual J++
Internet Security Threats and Countermeasures
Advanced TCP/IP Internetworking
ELECTRONIC COURSEWARE TITLES
Basic Internet Business Skills
Advanced Internet Business Skills
Empowering the Enterprise With Microsoft Internet Explorer 4.0
Internet Security for Business Applications
Gaining Market Intelligence Using the World Wide Web
Introduction to HTML Authoring
Advanced HTML Authoring
Internet/Intranet Publishing Using Microsoft FrontPage 97
Introduction to JavaScript Programming
Advanced JavaScript Programming
9
<PAGE>
Schedule 2
Agreement Terms
Guaranteed License Fee: $1,600,000
Payment dates of Guaranteed License Fee:
The payments under the Guaranteed License Fee shall be due and payable
to Prosoft within 15 calendar days of each of the following dates, and shall
be paid in United States dollars in the amounts set forth next to each date:
March 31, 1998: $200,000
June 30, 1998: $200,000
September 30, 1998: $200,000
December 31, 1998: $200,000
March 31, 1999: $200,000
June 30, 1999: $200,000
September 30, 1999: $200,000
December 31, 1999: $200,000
Initial Agreement Term: Effective date through January 31, 2003
10
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Schedule 3
Trademarks
Copyright Notifications
11
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TRI
Intellectual Property
1. Courseware Reproduction License Agreement Jan. 20, 1998
2. Training Resale Agreement Jan. 21, 1998
3. Amendment No. 1 to Courseware Reproduction Agreement
4. Sublicense Agreement--TRI Mar. 27, 1998
5. Assignment of Contracts and Compensation Agreement Jul. 5, 1998
TRI (Not Used)
6. Amendment No. 1 to Courseware Reproduction License Aug. 1, 1998
Agreement - Prosoft & TRI
7. Prosofttraining.com: Termination of Courseware License Dec. 14, 1998
Agreement
8. Letter Terminating License Agreement by Mike Khaled Dec. 21, 1998
<PAGE>
Exhibit A
TRAINING RESALE AGREEMENT
This Training Resale Agreement (this "AGREEMENT") is entered into on
this 21st day of January, 1998 by and between Prosoft I-Net Solutions, Inc.,
a Nevada corporation ("PROSOFT"), and Training Resources, Inc., a Nevada
corporation (the "TRAINING AFFILIATE"), with reference to the following facts:
(1) The Training Affiliate is in the business of corporate training and
has certain clients and customers who have a need for Internet, Intranet and
other computer training.
(2) Prosoft has developed expertise in Internet. Intranet and other
related computer training and services as more particularly described in
Prosoft's catalogues and other materials which it has, or will, provide the
Training Affiliate from time to time (collectively, the "TRAINING"),
including the Prosoft Courses set forth on SCHEDULE 1 attached hereto (the
"PROSOFT COURSES"). Prosoft has ownership or possession of various
internet/intranet computer training centers (the "TRAINING CENTERS"), the
locations and addresses of which are set forth on SCHEDULE 2. Prosoft and the
Training Affiliate wish to form a relationship under which the Training
Affiliate will sell the Training to its clients and customers and Prosoft
will deliver the Training to such clients and customers, on the terms and
conditions set forth herein.
(3) Prosoft and the Training Affiliate have entered into the Courseware
Reproduction License Agreement dated as of January 20, 1998 (the "License
Agreement"), and under the terms of the License Agreement the Training
Affiliate has been granted the right to enter into this Agreement with
Prosoft.
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, intending to be legally bound hereby, the
parties hereby agree as follows:
1. SALES AND COMPENSATION.
(a) GENERAL COMPENSATION STRUCTURE. The Training Affiliate shall
receive the following percentage discounts (the "SALES DISCOUNTS") off the
List Price for the following types of Training sales, provided that the
Training Affiliate shall have satisfied the Closing Requirements:
<TABLE>
<CAPTION>
Sales Type Sales Discount
---------- --------------
<S> <C>
Lead Generation Discount 10%
Sale Closing Discount 25%
</TABLE>
The Training Affiliate shall receive no Lead Generation Discount or Sale
Closing Discount with respect to any class containing 4 or fewer Students.
(b) COMPENSATION RESULTING FROM PROSOFT SALES IN EDUCATION MARKET.
During the term of this Agreement, the Training Affiliate shall receive 25%
of any revenues received by Prosoft relating to sales by Prosoft's internal
sales staff of instructor-led training distance learning or seminar-style
training to Educational Institutions (as defined below). As used herein,
"Educational Institutions" shall mean public and private elementary,
secondary and post-secondary educational institutions and all agencies,
departments, divisions, bureaus and branches thereof.
2. BILLING; PAYMENT OF COMMISSIONS. The Training Affiliates be solely
responsible for all billing and collections with respect to the Training
Purchasers hereunder. Prosoft will invoice the Training Affiliate for the
List Price of such Training minus the applicable Sales Discounts (the
"INVOICED AMOUNTS"), and such invoices shall be due and payable by the
Training Affiliate within 30 days of the mailing thereof. The Training
Affiliate agrees that as a reseller of the Training, the Training Affiliate
shall be unconditionally liable to Prosoft for the payment of all Invoiced
Amounts in accordance with this SECTION 2, regardless of any Training
Purchaser's failure to pay the Training Affiliate or delay in paying the
Training Affiliate any amounts relating to the Training provided by Prosoft
hereunder.
3. TRAINING ADMINISTRATION. During the term of this Agreement,
Prosoft shall be responsible for, shall bear the cost of and agrees to do the
following: (i) manage the scheduling of the courses constituting the Training
and the registration (including confirmations and cancellations) of the
Students; and (ii) provide the instructors, courseware, computer equipment
and other hardware and furniture that will be necessary for the completion of
the Training.
4. SALES REPRESENTATIVE AND MARKETING.
(a) SALES REPRESENTATIVE. During the term of this Agreement, the
Training Affiliate shall employ at all times at least one (1) sales
representative (the "SALES REPRESENTATIVE") who shall be responsible for and
shall agree to do the following: (i) dedicate at least 50% of his or her time
(i.e. at least 20 hour per week) to overseeing the Training Affiliate's sales
and marketing efforts with respect to the Training in the Subject Market, and
(ii) compile and distribute information useful to the sales and marketing of
the Training as requested from time to time by Prosoft, including without
limitation (A) preparing weekly written reports, in the form of Exhibit A
hereto (as supplemented or amended by Prosoft from time to time, the "SALES
REPORTS"), and submitting the Sales Reports directly to Prosoft on a weekly
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basis, and (B) preparing monthly written reports by the 20th day of each
month with respect projections of Training business for the next succeeding
month (the "PROJECTION REPORTS"), and submitting such Projection Reports
directly to Prosoft within two days of the completion thereof. The name,
address and telephone number of the Sales Representatives are set forth on
SCHEDULE 3 hereto. The Training Affiliate shall immediately notify Prosoft in
writing of any changes in the Sales Representative's name, addtress or phone
number. The Training Affiliate shall provide a copy of this Agreement to the
Sales Representative, and secure the agreement of the Sales Representative to
the terms and conditions hereof that directly relate to such Sales
Representative.
(b) MARKETING. During the term of this Agreement, the Training
Affiliate shall use its best efforts to actively and agressively market,
promote and sell the Training within the Subject Market. The Training
Affiliate is free to promote and advertise the Training in any manner in
which the Training Affiliate deems appropriate, provided that such promotion
and advertising shall be performed in accordance with the Trademark
Guidelines set forth on EXHIBIT C.
5. TRAINING OF THE TRAINING AFFILIATE AND ITS EMPLOYEES. Prosoft will
prvide to the Training Affiliate and its employees, and the Training
Affiliate and its employees (including the Sales Representative) will be
reasonably available for, between 10 and 20 hours of sales and marketing
training relating to the Training.
6. REPRESENTATIONS AND WARRANTIES. As an inducement to enter into this
Agreement, each party represents and warrants as follows: (a) such party has
full power and authority to execute, deliver and perform its obligations
under this Agreement; (b) there are no actions, proceedings or
investigations, pending or, to the best of the such party's knowledge,
threatened against such party, which may in any manner whatsoever materially
affect the enforceability of this Agreement or the Training; (c) the
execution, delivery and performance of this Agreement will not consitute a
breach or default under any agreement, law or court order under which such
party is a party or may be bound or affected by or which may affect the
Training, and (d) the Training Affiliate represents and warrants, and Prosoft
acknowledges, that the Training Affiliate maintains and will maintain
significant business operations relating to product lines and services other
than the sale of Prosoft internet and intranet training.
7. PROPRIETARY INFORMATION. Each party understands that the other
party hereto (such other party being referred to as the "OWNING PARTY")
possesses and will continue to possess information, software, data, hardware,
furniture, course books, catalogues, brochures, marketing material and other
printed material, and other tangible and intangible property of a proprietary
nature that has been created and developed by such Owning Party (including
without limitation any such information or property created or developed by
such Owning Party during the term of this Agreement), or in which property
rights have been assigned or otherwise conveyed to such Owning Party
(collectively, "PROPRIETARY INFORMATION"), which Proprietary Information has
commercial value in the business in which such Owning Party is engaged. Each
party agrees that all such Proprietary Information, whether provided to such
party in connection with the Training or otherwise, is and shall be the
property of the Owning Party, whether or not such Proprietary Information is
copyrighted, patented, or trademarked, and the Owning Party shall be the sole
owner of all copyrights, patents and trademarks, and other rights in
connection therewith. At all times during the term of this Agreement and
after its termination, each party shall keep in its strictest confidence and
trust all Proprietary Information and will not, and will not let any other
Person, disclose, copy, reproduce, transmit or otherwise use any of the
Proprietary Information, except (i) as may be necessary in connection with
Prosoft's delivery of the Training pursuant to the terms and conditions of
this Agreement, or (ii) with the written consent of the Owning Party. Upon
the termination of this Agreement, each party shall return to the Owning
Party all Proprietary Information made available to such party, and shall not
take or use any of the Proprietary Information, any reproduction or summary
of the Proprietary Information or any Proprietary Information that is
embodied in a tangible medium.
8. TERM OF AGREEMENT; TERMINATION. This Agreement shall be effective
from the date hereof until the later of the "Termination Date" (as defined in
the License Agreement) or the Extended Termination Date (as defined in the
License Agreement), unless the License Agreement is terminated sooner than the
Termination Date or the Extended Termination Date in accordance with the
terms thereof, in which case this Agreement shall automatically terminate.
9. MISCELLANEOUS. No amendment, waiver or modification to this
Agreement shall be effective unless in writing and signed by both parties
hereto. The Training Affiliate may not assign any of its rights or
obligations under this Agreement, without the prior written consent of
Prosoft, which consent may be witheld or denied in its sole and absolute
discretion. Any notices and other communications between the parties in
connection with this Agreement shall be delivered by overnight courier, U.S.
mail or facsimile at the addresses set forth on SCHEDULE 3 hereto and shall
be deemed received upon the earlier to occur of the actual receipt of such
notice or, if mailed, five (5) Business Days following deposit in the mail.
To the fullest extent permitted by law, the Training Affiliate agrees to
protect, indemnify, defend and hold harmless Prosoft, its directors,
officers, agents and employees from and against any and all liability,
expense, loss or damage of any kind or nature and from any suits, claims or
demands, including reasonable attorney's fees and costs, on account of any
matter or thing or action, whether in suit or not, arising out of this
AGreement, or the Training, or in connection herewith or therewith, unless
such suit, claim or demand is caused soley by gross neglegence or willful
misconduct of Prosoft, its directors, officers, agents and employees. The
Training Affiliate hereby represents, warrants, acknowledges and admits that
(i) Prosoft does not owe any fiduciary duty to the Training Affiliate with
respect to this Agreement or the transactions contemplated hereby, and (ii)
no partnership, franchise or joint venture is granted or exists with
respect to the Agreement between Prosoft and the Training Affiliate. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. This Agreement
may be executed in any number of counterparts each of which shall be deemed
an original and all of which shall constitute one and the same agreement with
the same effect as if all parties had signed the same signature page. Any
signature page of this Agreement may be detached from any conterpart of this
Agreement and reattached to any other counterpart of this Agreement identical
in form hereto but having attached to it one or more additional signature
pages.
10. NON-COMPETE. The Training Affiliate shall not directly or
indirectly sell, resell, engage in the providing of any, or have any
substantial ownership interest in any Person that engages in the providing of
any, Internet or Intranet training (including without limitation
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<PAGE>
the providing of any training using the techniques, methods or materials of
Prosoft), other than the Training Affiliate's resale of the Prosoft Courses.
11. DEFINITIONS. In addition to the other terms defined herein, the
following initially capitalized terms shall have the meanings set forth below:
"BUSINESS DAY" means a day, other than a Saturday, Sunday or legal
holiday on which commercial banks are authorized or obligated by law or
executive order to close in the State of California.
"CLOSING REQUIREMENTS" means the following requirements that must
be satisfied by the Training Affiliate in order for the Training Affiliate to
receive a Sales Discount with respect to sales of Training: (a) Prosoft shall
have received an original or a copy of a purchase order for such Training
signed by the Training Purchaser, and (b) the Training Affiliate shall have
properly completed the Student Registration Form attached hereto as EXHIBIT B
and submitted such form to Prosoft's Educational Consulting Center at the
address set forth on SCHEDULE 3 hereto.
"LEAD GENERATION DISCOUNT" means the discount off the List Price
for any Training that results from a lead or referral supplied to Prosoft by
the Training Affiliate, where such Training is sold either (a) exclusively by
Prosoft or (b) by the Training Affiliate upon the use of Prosoft
Presentational Sales Support.
"LIST PRICE" means the list price for any particular Training as
published by Prosoft from time to time as described in the invoice delivered
by Prosoft to the Training Affiliate or Training Purchaser pursuant to
SECTION 3 hereof.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee
thereof, estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision thereof, or
any other legally recognizable entity.
"PROSOFT ADMINISTRATIVE SALES SUPPORT" means sales support provided
by Prosoft to the Training Affiliate involving no more than telephonic
assistance by (a) a Prosoft Educational Consultant with respect to pricing,
scheduling and curricular planning issues, and the scheduling and planning of
onsite Training, or (b) a Prosoft Area Manager or Regional Vice President
with respect to pricing issues.
"PROSOFT PRESENTATIONAL SALES SUPPORT" means sales support provided
by Prosoft to the Training Affiliate in which either (a) Prosoft prepares a
written or oral presentation that is delivered by Prosoft or the Training
Affiliate to the Training Purchaser in connection with the closing of the
sale, or (b) a Prosoft Regional Vice President or Area Manager becomes
directly involved in coordinating the execution and closing of the sale,
including without limitation by attending telephonic or live meetings with
the Training Purchaser or by participating in the preparation or delivery of
the presentation described in clause (a).
"SALE CLOSING DISCOUNT" means the discount off the List Price for
any Training that is sold exclusively by the Training Affiliate without any
Prosoft Presentational Sales Support (as reasonably determined by Prosoft),
provided that the Training Affiliate may have received Prosoft Administrative
Sales Support in connection with such sale and still qualify for the "Sale
Closing Discount".
"SUBJECT MARKET" means the geographic area described on SCHEDULE 3
hereto.
"TRAINING PURCHASER" means any Person that is a purchaser or
potential purchaser of the Training.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the date first above written.
"PROSOFT"
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By: /s/ Donald Danks
------------------------
Name:
Title: VP
"TRAINING AFFILIATE"
By: /s/ Michael Khalid
------------------------
Name:
Title:
14
<PAGE>
SCHEDULE I
----------
PROSOFT COURSES
ENTERPRISE INTERNET LITERACY TRACK
- ----------------------------------
End User Series
Basic Internet Business Skills
Advanced Internet Business Skills Using the Web
Netscape Communicator for Web Power Users*
Internet Security for Business Applications
Internet/Intranet Business Applications Using Office 97
Conducting Market Research Using the Internet and the Web
Web Publishing Series
Introduction to HTML Authoring
Intermediate HTML Authoring
Advanced HTML Authoring
Internet/Intranet Publishing Using Microsoft FrontPage 97
Web Publishing Using Microsoft FrontPage 97
WEB PROFESSIONAL TRACK
- ----------------------
Web Master Series
Microsoft Web Master Boot Camp
Netscape Web Master Boot Camp
Visual Site Design and Management Using NetObjects FUSION 2.0*
Creating Dynamic and Interactive Multimedia Web Sites
Instant Java: Incorporating Java Applets and Javascript in Web Pages
Introduction to VRML Authoring and Interactive 3D Modeling for the Web
Web Developer Series
Introduction to JavaScript Programming
Advanced JavaScript Programming
Netscape LiveWire Pro Workshop*
Learning and Applying Java Development Tools
Fundamentals of Java Programming
Fundamentals of CGI Programming
VB Script for Web Applications
Introduction to ActiveX Technology and Tools
Deploying Active Platform and ActiveX Server Pages on IIS 3.0
Managing Software and Web Development With Microsoft Visual SourceSafe 5.0*
Developing Java Applets and ActiveX Controls Using Visual J++*
Developing Java Applets Using Symantec Visual Cafe Pro*
Implementing a Database Design on Microsoft SQL Server 6.5
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I-NET ENGINEER TRACK
- --------------------
PLATFORM INDEPENDENT SERIES
Internet Security Threats and Countermeasures*
Advanced TCP/IP Internetworking
Internetworking: Configuring Bridges and Routers*
NETSCAPE SOLUTIONS SERIES
The Full Service Intranet Implementing Netscape Technology and Solutions
Building Network-Centric Applications Using Netscape Open Network Environment
(ONE)**
Implementing Commerce Based Web Sites Using Netscape Commerce Platform and
LivePayment**
Implementing Turn-Key Commerce Solutions and Extranets Using Netscape
Commercial Applications**
MICROSOFT SOLUTIONS SERIES
Building and Deploying Corporate Intranets Using Microsoft Solutions
Supporting Microsoft Windows 95
Supporting Microsoft Windows NT Server 3.51
Supporting Windows NT 4.0 Core Technologies
Internetworking Microsoft TCP/IP on Microsoft Windows NT 3.5
Supporting Microsoft Internet Information Server 2.0
Fundamentals of Microsoft Exchange Server
System Administration for Microsoft SQL Server 6.0
NETSCAPE PRODUCT CENTRIC SERIES
Netscape Proxy Server (NT Platform)
Netscape Enterprise Server (NT Platform)
Netscape Mail Server (NT Platform)
Netscape News Server (NT Platform)
<PAGE>
AMENDMENT NO. 1 TO
COURSEWARE REPRODUCTION LICENSE AGREEMET
THIS AMENDMENT NO. 1 TO COURSEWARE REPRODUCTION LICENSE AGREEMENT (the
"AMENDMENT") between PROSOFT I-NET SOLUTIONS, INC. ("PROSOFT") and TRAINING
RESOURCES INTERNATIONAL, INC., a Nevada corporation (the "CUSTOMER") is made
and entered into as of the 1st day of August, 1998. Prosoft and the Customer
will be sometimes collectively referred to herein as the "PARTIES."
R E C I T A L S
---------------
A. The parties entered into a Courseware Reproduction License Agreement
mistakenly dated as of January 20, 1997, but intended to be dated as of
January 20, 1998 (the "LICENSE AGREEMENT").
B. The parties desire to amend the License Agreement pursuant to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, do
hereby agree as follows:
1. DATE. The date of the License Agreement is amended to read "as of
January 20, 1998."
2. SCHEDULE 2. Schedule 2 of the Agreement is hereby replaced with
Schedule 2 attached to this Amendment.
3. DEFINITIONS.
(a) A new definition of "Future Titles" shall be inserted in the
appropriate alphabetical location in Section 1 of the Agreement and shall
read as follows:
"Future Titles" shall mean Courseware Titles tied to internet skills
or training that are not set forth on Schedule 1 of this Agreement or that
are developed or published by Prosoft after the date of this Agreement, but
shall not include any courseware that is not developed by Prosoft."
(b) The definition of "Educational Institution" set forth in Section 1 of
the Agreement is hereby amended by inserting the words "in the United States"
between the phrases "educational institutions" and "and all agencies".
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(c) The definition of "Net Receipts" set forth in Section 1 of the
Agreement is hereby amended to read as follows:
"Net Receipts" shall mean all gross revenue received from the sales,
licensing or other distribution of the Kits, but not including revenue not
directly related to the sale or licensing of the Kits, provided that the
price charged for the Kits is an identified line item and is no less
than the Distributor's cost to produce a Kit (plus a reasonable profit
thereon and an allowance for the Royalty Payment (as defined below)
associated therewith). Examples of items that are not included in the
term "Net Receipts," include but are not limited to, taxes, duties,
tariffs, freight, shipping, support or other charges, but only to the
extent such other items are separately stated on the invoice(s).
4. SECTION 2. The title to Section 2 of the Agreement is hereby
amended to read as follows:
"2. GRANT OF LICENSE."
5. SECTION 2.1. Section 2.1 of the Agreement will be amended to read
in its entirety as follows:
"2.1 GRANT OF LICENSE. Prosoft hereby grants to Customer an
exclusive license to use, sell, or distribute the Courseware to any
Educational Institutions. In addition, and subject to the terms and
conditions of this Agreement, Prosoft hereby authorizes Customer to
reproduce and distribute the Courseware Titles exclusively for Customer
Resale. Customer may not license or sublicense the courseware Titles to
any third parties in any form without the prior written consent of
Prosoft (which consent shall not be unreasonably withheld). Customer
agrees not to reverse compile or translate the Courseware Titles, in
whole or in part. Customer shall have the right, however, to
disassemble and reassemble any of the Courseware Titles and to sell the
reassembled titles in the same manner as the Courseware Titles, subject
to the same License Fee, provided that (a) such sale of reassembled
Courseware Titles may only occur to the Educational Institutions, and
(b) such reassembled products must be approved by Prosoft if the Prosoft
trademark or tradename is attached to such reassembled products.
Customer shall have the rights to sell the Kits, or any part thereof, in
any combination of elements that it deems appropriate (for example,
without limiting the forgoing, Customer may package and sell the
Electronic Courseware Title alone, or in combination with a Paper-based
Courseware Title and/or an Exercise Disk). Prosoft reserves all rights
not expressly granted to Customer in this Agreement."
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6. SECTION 3. Sections 3.1, 3.2, and 3.3 of the Agreement are hereby
amended to read in their entirety as follows:
"3. LICENSE FEES.
3.1 ROYALTY PAYMENTS. Customer shall pay to Prosoft twenty
percent (20%) of Customer's Net Receipts from Customer's distribution of
the Kits (such amounts being referred to herein as the "Royalty
Payments"). Such royalty Payments shall be payable in accordance with
Section 3.3 hereof.
3.2 GUARANTEED LICENSE FEE. Upon execution of this Agreement,
Customer shall be immediately bound and obligated to pay to Prosoft a
guaranteed, non-refundable license fee in the amount of $1,600,000 (the
"GUARANTEED LICENSE FEE") on such dates as specified on Schedule 2,
which Guaranteed License Fee shall constitute an advance by Customer on
all Royalty Payments owing by Customer to Prosoft under Section 3.1.
Such payments of the Guaranteed License shall be made strictly on the
dates set forth on Schedule 2, and there shall be no grace period for
the payment thereof. Customer's payment of the Guaranteed License Fee
shall be guaranteed, unconditional, irrevocable and non-refundable,
regardless of the number of Kits sold by the Customer to its End
Customers and the amount of the Royalty Payments due to Prosoft. The
payment by customer of the Guaranteed License Fee shall serve as
consideration for the grant by Prosoft to Customer of the right to
reproduce Kits from the courseware Titles set forth on Schedule 1 in
accordance with the terms of this Agreement, and shall be payable
notwithstanding the existence of the Future Titles. Notwithstanding
anything to the contrary contained herein, Customer shall have the right
at any time and from time to time to substitute Future Titles for any of
the Courseware Titles set forth on Schedule 1 (and Prosoft agrees to
identify the existence and nature of such Future Titles upon Customer's
request) and such substituted Future Titles will become "Courseware
Titles" for all purposes under this Agreement, so long as the total
number of Courseware Titles subject to this Agreement does not increase
in number, provided, however, that with respect to uses, sales or
distributions by Customer of Courseware to Educational Institutions,
Customer shall have the right to substitute Future Titles in its
discretion (including Future Titles relating to Prosoft's Internet
Certification programs provided that the purchaser of such Kits shall
have executed a CIW license agreement in form supplied by Prosoft) and
without any prior refusal right of Prosoft."
3.3 PAYMENTS DUE. Customer shall provide monthly written reports
indicating the quantities of Kits (and the parts thereof) reproduced
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and the Royalty Payments due thereon, and such amounts shall be paid
within thirty (30) days of the end of each month for all reproductions
made that month (or for any prior month(s) for which royalties are
calculable), provided that no Royalty Payments shall be due Prosoft
until the total amount of all Royalty Payments owing exceed the
cumulative amount of the Guaranteed License Fee paid to Prosoft as of
the date of determination, and then only to the extent of the excess.
All sums are to be paid in United States dollars. Any payment not
received when due shall bear interest at the rate of 10% per annum,
calculated monthly."
7. SECTION 4. Section 4 of the Agreement is hereby amended to read in
its entirety as follows:
"4. RESELLER AGREEMENT; GRANT OF EXCLUSIVITY.
4.1. RESELLER AGREEMENT. Customer, upon execution of a Training
Resale Agreement, the form of which will be provided by Prosoft and
which will be substantially similar to other reseller agreements entered
into by Prosoft and its third party resellers at that time (the
"Reseller Agreement"), shall have the right to become a non-exclusive
reseller of Prosoft's instructor led training to Educational
Institutions, upon the terms and conditions set forth in the Reseller
Agreement.
4.2. GRANT OF EXCLUSIVITY. From the effective date until
Termination Date (as defined below), Customer shall have the exclusive
right to resell the Courseware Titles to Educational Institutions. In
the event that Customer elects the Renewal Option in accordance with
Section 10 hereof, then Customer shall have the exclusive right to
resell the Courseware Titles to Educational Institutions through
January 31, 2008. Except as expressly set forth herein, neither
(i) Prosoft and its agents, affiliates and employees, nor (ii) any other
third party, (the parties referred to in clauses (i) and (ii) being
referred to herein as the "Restricted Parties"), shall sell or
distribute the Courseware Titles to any Educational Institution during
the Exclusivity Period. Prosoft, at its sole cost and expense, shall
take all necessary measures and actions (including the prosecution of
lawsuits and injunctions with the proper courts) to insure that no
Restricted Parties shall sell or distribute the courseware Titles to any
Educational Institution during the Exclusivity Period. For purposes
hereof, the term "EI TRAINING EVENT" shall include, but not necessarily
be limited to, seminars, instructor led training, distance learning, and
the like, that any of the Restricted Parties deliver to any Educational
Institution. Notwithstanding anything to the contrary contained herein,
the Courseware Titles may be sold or distributed by the Restricted
Parties to any Educational Institution in connection with an EI Training
Event during the Exclusivity Period, provided that Prosoft pays to
Customer a sublicense fee
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as follows: (a) in the case where Prosoft directly sells any EI Training
Event to any Educational Institution, 25 percent of the invoiced revenue
(not including instructor travel expenses, room rental charges,
equipment rental charges and other costs not associated with instruction
and content (such excluded costs being referred to as "Excluded Costs"))
for such EI Training Event; (b) in the case where a third party sells
any EI Training Event to any Educational Institution on behalf of
Prosoft, 30% of the fee (not including Excluded Costs) that Prosoft
receives from such third party; (c) in the case where a third party
sells a single seat for an EI Training Event to a student associated
with any Educational Institution, 3 percent of the revenue received by
Prosoft (not including Excluded Costs) arising from such student's
participation in such EI Training Event; and (d) in the case where
Prosoft sells any Courseware Titles or any Kits to any Educational
Institution where such a sale is not related to an EI Training Event, 75
percent of the invoiced revenue relating to such sale, provided that
Customer shall have given Prosoft its prior written approval of the terms
and conditions of such sale prior to the consummation thereof. With
respect to any amounts owing by Prosoft to Customer in connection with
clauses (a) through (d) above, such amounts shall be considered "Net
Receipts" for purposes of this Agreement, and Prosoft shall provide
Customer with quarterly written reports describing the EI Training
Events that have occurred and the amounts owing Customer for the
three-month periods ending January 31, April 30, July 31 and October 31
(the "Prosoft Quarter-End Dates") during the term of this Agreement.
Such written reports, and the payments owing by Prosoft for such
quarters, shall be delivered to Customer within 30 days of each of the
Prosoft Quarter-End Dates."
8. SECTION 7.4. A new Section 7.4 of the Agreement shall be added and
shall read as follows:
"7.4 Changes to Trade-dress. In the event that Prosoft alters its
trade dress, Prosoft shall notify the customer of the details of such
change and Customer shall promptly begin using the new trade-dress in
connection with the Kits."
9. SECTION 14. Section 14 of the Agreement is hereby amended to read in
its entirety as follows:
"14. ASSIGNMENT. Except as provided herein, neither party may assign
their rights or obligations under this Agreement. Notwithstanding
anything to the contrary contained herein, either party may assign this
Agreement to a company which acquires all or substantially all of its
assets or into which it is merged, provided that such acquiring company
assumes
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<PAGE>
all the obligations under this Agreement."
10. SECTION 24.1. Section 24.1 is hereby amended in its entirety to read as
follows:
"24.1. Customer is hereby granted a nonexclusive license
under Prosoft's post secondary status and, once Prosoft has been
accredited, the accreditation, to be used by Customer is its distance
learning business. Prosoft will use its best efforts to complete the
accreditation process and will diligently pursue such process through to
completion. Prosoft will provide Customer with a timetable for the
completion of the accreditation process, which timetable shall be
subject to the reasonable approval of Customer. Prosoft shall keep
Customer apprised as to its progress in this regard. Customer shall have
a nonexeclusive license under this accreditation, along with Prosoft,
for so long as Prosoft operates its vocational division (the "Vocational
Division"), that is, for so long as it is funded by Title III monies and
trains unemployed workers. Customer is hereby granted an irrevocable
option (the "Option") to acquire all of Prosoft's right, title and
interest under the post secondary status and the accreditation status
and/or process (if accreditation has not yet been attained), which
option shall be immediately exercisable by Customer at an exercise price
of $1,000.00 upon written notice to Prosoft at such time as Prosoft (a)
discontinues operation of the Vocation Division, or (b) is acquired by a
third party."
Other than as amended hereby, the Agreement shall remain in full force
and effect and the parties hereby ratify and reaffirm the Agreement as so
amended. All references in the Agreement to "the Agreement," "this Agreement,"
"hereof" and words of like import shall mean the Agreement as modified by this
Amendment.
IN WITNESS WHEREOF the parties hereto have executed this Amendment as
of the date set forth above.
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By /s/ Jerrell M. Baird
------------------------------
Name: Jerrell M. Baird
Title:Chairman
TRAINING RESOURCES
INTERNATIONAL, INC.,
a Utah corporation
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<PAGE>
By /s/ Michael Khaled
------------------------------
MICHAEL KHALED
President
APPROVED:
NETGATEWAY,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
-----------------------------------
Donald M. Corliss, Jr.,
President
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Schedule 2
Agreement Terms
Guaranteed License Fee: $1,600,000
Payment dates of Guaranteed License Fee:
The payments under the Guaranteed License Fee shall be due and payable
to Prosoft within 15 calendar days of each of the following dates, and shall be
paid in United States dollars in the amounts set forth next to each date:
March 31, 1998: $200,000
June 30, 1998: $200,000
September 30, 1998: $100,000
December 31, 1998: $100,000
March 31, 1999: $250,000
June 30, 1999: $250,000
September 30, 1999: $250,000
December 31, 1999: $250,000
Initial Agreement Term: Effective date through January 31, 2003
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SUBLICENSE AGREEMENT
This Sublicense Agreement (the "Agreement") is entered into as of March
27, 1998 (the "Effective Date"), by and between Training Resources
International, Inc., a Nevada Corporation ("TRI"), and NetGateway, a Nevada
corporation ("NetGateway")
WHEREAS, TRI and Prosoft I-Net Solutions, Inc., a Nevada corporation
("Prosoft") have entered into the Courseware Reproduction License Agreement
dated January 20, 1998, as amended pursuant to the Amendment No. 1 to Courseware
Reproduction License Agreement dated as of January 12, 1998 (such agreement,
together with this amendment and any other existing or future amendments,
replacements, modifications or supplements thereof, being referred to herein as
the "License"); and
WHEREAS, TRI and NetGateway wish to enter into an agreement whereby TRI
will sublicense its rights to NetGateway under the License to NetGateway.
NOW, THEREFORE, in consideration of the terms and conditions set forth
below and other sufficient consideration, the parties hereto agree as follows:
1. TRI hereby grants and assigns to NetGateway a sublicense to all of
its rights and interests under the License, including, without limitation, its
rights thereunder with respect to the Courseware Titles (as defined in the
License).
2. The term of this Agreement shall be from the date hereof until the
date that the License is terminated in accordance with its terms.
3. As total consideration for the grant of the sublicense set forth
herein, NetGateway shall pay to TRI, on or before the Payment Dates (as defined
below), all amounts owing and payable to TRI to Prosoft on and after the
Effective Date under the License. As used herein, a "Payment Date" shall mean 2
business days before any day that TRI is required to make a payment to Prosoft
under the License.
4. Prosoft, by signing the signature block set forth below, hereby
approves the grant of the sublicense upon the terms set forth herein, provided
that nothing in this Agreement shall relieve TRI of any of its obligations under
the License. Prosoft and TRI agree to provide NetGateway with any written
notification sent by either such party to the other party under the License to
NetGateway's office located at 300 Oceangate, 5th Floor, Long Beach, CA 90802,
Attention: Donald M. Corliss, Jr. Prosoft, TRI and NetGateway further agree that
NetGateway shall have the right to add its trade dress and/or branding to the
Courseware (on either an exclusive basis or on a co-branded basis with Prosoft,
in NetGateway's discretion), and NetGateway shall have the right to sell
site-licenses to end-user customers with respect to the Courseware (in which
such customer pays a flat-fee and is permitted to reproduce the Courseware in a
manner that is not inconsistent with the terms of the License), provided that
Prosoft shall have approved such trade dress or site-licensing (whether on an
exclusive or co-branded basis), as the case may be, which approval shall not be
unreasonably withheld.
5. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the conflict of laws
provisions thereof.
6. This Agreement supersedes all prior agreements between the parties
regarding the subject matter hereof and sets forth the entire agreement of the
parties concerning such subject matter. The sublicense of TRI's rights under the
License to NetGateway shall include any presently existing and any future rights
(whether by amendment, modification or otherwise of the License) of TRI.
<PAGE>
7. This Agreement may be executed in one or more counterparts, which
together will constitute one agreement.
8. TRI and NetGateway agree that all disputes and controversies arising
out of, or in any manner relating to, this Agreement which the parties do not
resolve in good faith within thirty (30) days after either of the parties
notifies the other of its desire to arbitrate such dispute or controversy shall
be settled by arbitration by the American Arbitration Association in accordance
with its then prevailing Commercial Arbitration Rules. Such arbitration shall be
conducted in Orange County, California. The award or decision made in such
arbitration shall be binding upon the parties and judgment upon the award may be
made in any court having jurisdiction. The prevailing party shall be entitled to
recover from the other party all reasonable costs and expenses of arbitration.
9. NetGateway shall have the right to approve in writing any future
amendments, modifications, supplements or extensions of the License between
Prosoft and TRI.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and acknowledged by duly authorized representatives as of the date set
forth above.
TRAINING RESOURCES INTERNATIONAL.,
INC., a Nevada corporation
By: /s/ Michael Khaled
--------------------------------
Name:
Title:
NETGATEWAY,
a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
--------------------------------
Name: Donald M. Corliss, Jr.
Title: President
AGREED TO AND ACKNOWLEDGED:
PROSOFT I-NET SOLUTIONS, INC.,
a Nevada corporation
By: /s/ Jerrell M. Baird
--------------------------------
Name: Jerrell M. Baird
Title: Chariman
<PAGE>
EXHIBIT 10.51
SETTLEMENT AND RELEASE AGREEMENT
This Settlement and Release Agreement (the "Agreement") is entered
into this 19 day of April, 1999 by and among Prosoft Training.com, a Nevada
corporation, formerly known as Prosoft I-Net Solutions, Inc. ("Prosoft"),
Training Resources International, Inc., a Nevada corporation ("TRI"),
S.T.E.P.S., Inc., a Utah corporation ("STEPS"), NetGateway, Inc., a Nevada
corporation ("NetGateway"), Michael Khaled, an individual ("Khaled"), Scott
Beebe, an individual ("Beebe"), and Donald Danks, an individual ("Danks").
RECITALS
1. STEPS and Prosoft entered into a Courseware Reproduction
License Agreement, dated October 29, 1997, which was amended on November 4, 1997
and August 1, 1998 (as amended, the "STEPS License Agreement"), which granted
STEPS certain rights to Prosoft courseware.
2. TRI and Prosoft entered into a Courseware Reproduction
License Agreement dated January 20, 1998, which was amended on August 1, 1998
(as amended, the "TRI License Agreement"), which granted TRI certain rights to
Prosoft courseware. The STEPS License Agreement and the TRI License Agreement
are sometimes collectively referred to herein as the "License Agreements".
3. Beebe and Prosoft entered into a Guarantee Agreement dated
April 9, 1998 pursuant to which Beebe guaranteed all of STEPS obligations under
the STEPS License Agreement (the "Beebe Guarantee").
4. Khaled and Prosoft entered into a Guarantee Agreement dated
April 9, 19998 pursuant to which Khaled guaranteed all of TRI's obligations
under the TRI License Agreement (the "Khaled Guarantee"). The Beebe Guarantee
and the Khaled Guarantee are sometimes collectively referred to herein as the
"Guarantees".
5. On or about January 25, 1998, TRI sublicensed its rights
under the TRI License Agreement to NetGateway.
6. On or about April 1, 1998, STEPS sublicensed its rights
under the STEPS License Agreement to NetGateway.
7. In December 1998, Prosoft terminated the STEPS License
Agreement and the TRI License Agreement for failure to make agreed upon payments
when due.
8. Certain disputes have arisen among the parties with respect
to the STEPS and TRI License Agreements and the Guarantees. In order to avoid
the burdens, inconveniences and
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expenses of litigation which would be incurred by the parties if a judicial
resolution of the disputes were sought, the parties desire to release, settle
and extinguish, in the manner set forth herein, any and all past, present and
future differences, disputes, claims, liabilities and obligations relating to
the License Agreements and the Guarantees.
AGREEMENT
In consideration of the foregoing and the mutual convenants contained
in this Agreement, the parties agree as follows:
1. PAYMENT TO PROSOFT. Concurrently with the execution of this
Agreement, TRI and STEPS shall pay to Prosoft by certified check or wire
transfer the aggregate amount of $200,000 (the "Settlement Payment"). The
obligations of TRI and STEPS pursuant to this paragraph 1 shall be joint and
several.
2. TERMINATION OF LICENSE AGREEMENT. The parties to this
Agreement agree that each of the TRI License Agreement and the STEPS License
Agreement have been terminated and are of no further force or effect.
3. TERMINATION OF EXISTING GUARANTEES. Effective upon receipt
by Prosoft of the Settlement Payment, the Beebe Guarantee and the Khaled
Guarantee shall terminate and be of no further force and effect.
4. MUTUAL RELEASE OF ALL CLAIMS.
4.1 NO LITIGATION. Each party represents that he or it
has not filed any complaints, charges or lawsuits against any other party with
any governmental agency or any court, or in the event that any such complaint,
charge or lawsuit has been filed, such party hereby agrees to dismiss such
action with prejudice, that he or it will not file any complaint or charge or
lawsuit against any other party at any time hereafter for any event occurring
prior to the date of execution of this Agreement and relating to the License
Agreements or the Guarantees, and that if any agency or court assumes
jurisdiction of any complaint, charge or lawsuit against any party on behalf of
any other party here it will request such agency or court to withdraw from the
matter.
4.2 MUTUAL GENERAL RELEASE. Each of the parties on
behalf of itself, its affiliates, partners, agents, shareholders, employees,
representatives, assigns and successors hereby fully releases and discharges
each other party and each other party's affiliates, partners, agents,
shareholders, employees, representatives, assigns and successors from all
rights, claims and actions, known or unknown, of any kind whatsoever, which each
party and the above-mentioned successors now have or may hereafter have against
the other parties and the above-mentioned successors, arising out of, in
connection with or by reason of any act, omission, cause or thing occurring or
existing at any time heretofore and arising from, in connection with or relating
to the License Agreements or the Guarantees.
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4.3 UNKNOWN CLAIMS. Each party expressly waives and
relinquishes all rights and benefits afforded by Section 1542 of the California
Civil Code which provides:
"A general release does not extend to claims
which the creditor does not know or suspect to exist
in his favor at the time of executing the release, which
if known by him must have materially affected the
settlement with the debtor."
Each party understands and acknowledges the significance and consequence of
this waiver of Section 1542 and nevertheless elects to, and does, release
those claims described in this Agreement, known or unknown, that it may have
now or in the future arising out of any act, omission, cause or thing,
relating to the License Agreements or the Guarantees.
5. REPRESENTATIONS AND WARRANTIES. Each of the parties to
this Agreement represents and warrants to the others that each of them has
the full power, capacity and authority to enter into this Agreement, that
none of them has sold, assigned or in any manner transferred any claims which
any of them ever had against the others to any third party, and that no other
releases or settlements are necessary from any other person or entity to
release and discharge completely the other parties from the claims specified
herein. Each party agrees to indemnify, defend and hold harmless each of the
other parties from and against any and all claims which may be asserted
against them, based upon, arising out of, or in connection with a breach of
its representations and warranties made herein.
6. EXECUTION NOT AN ADMISSION. This Agreement is the result of
a settlement and compromise of disputed matters as herein set forth. By entering
into this Agreement, no party hereto admits that the claims of any other are
valid or more meritorious and each party hereto agrees that the terms of this
Agreement shall never be used, referred to or considered as an admission of
liability of such claims. The undersigned hereby have in the past denied and
continue to deny the claims, assertions, allegations and contentions of the
others and any and all liability associated therewith.
7. LEGAL REPRESENTATION. Each party acknowledges that it has
had the opportunity to receive the advice of independent legal counsel prior to
the execution of this Agreement and the opportunity to receive an explanation
from legal counsel of the legal nature and effect of the Agreement, and each
party has fully exercised that opportunity to the extent desired and understands
the terms and provisions of this Agreement and its nature and effect. Each party
further represents that it is entering into this Agreement freely and
voluntarily, relying solely upon the advice of its own counsel, and not relying
on the representations of any other party or of the counsel of any other party.
Each party expressly agrees that this Agreement shall not be construed or
interpreted for or against the party drafting the Agreement.
8. GENERAL PROVISIONS.
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8.1 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
8.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
heirs, successors and assigns.
8.3 APPLICABLE LAW. This Agreement is made, executed
and entered into and shall be governed by the laws of the State of California.
8.4 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 under this Section 8.4 to all other
parties to this Agreement.
8.5 INTEGRATION. This Agreement contains the entire
agreement and understanding concerning the subject matter herein and supersedes
and replaces any prior negotiations and agreements between the parties hereto,
or any of them, whether written or oral.
8.6 ATTORNEYS' FEES. If any party breaches any
obligation under this Agreement, the non-breaching party shall be entitled to
its reasonable expenses, attorneys' fees, and costs incurred in any action
taken, with or without litigation, to enforce the terms of the Agreement, or to
remedy or compensate for such breach.
8.7 SEVERABILITY. In the event that any one or more
of the provisions of this Agreement shall be declared invalid, illegal, or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not be in any way affected or
impaired thereby.
8.8 MODIFICATIONS. Any alterations, changes or
modification of or to this Agreement in order to be effective, shall be made by
written instrument or endorsement thereon and in each such instance shall be
duly signed on behalf of each party hereto.
8.9 CONFIDENTIALITY. The parties hereto shall in no
way publicize to any individual or entity not a party to this Agreement the
terms of the Agreement, except as required by operation of law (including public
reporting requirements under federal securities laws), or except to such
parties' lenders, accountants, agents, officers, shareholders, employees,
representatives or consultants.
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The parties have entered into this Agreement as of the day and year
first written above.
"PROSOFT" "TRI"
PROSOFTTRAINING.COM, a Nevada TRAINING RESOURCES
corporation, formerly known as INTERNATIONAL, INC., a Nevada
Prosoft I-Net Solutions, Inc. corporation
By: /s/ Jerrell M. Baird By: /s/ Michael Khaled
------------------------ ------------------------
Its: CEO Its:
------------------------ ------------------------
Address: 3001 Bee Caves Rd., Address: [ILLEGIBLE]
Suite 100 [ILLEGIBLE]
Austin, TX 78746 [ILLEGIBLE]
"STEPS" "NETGATEWAY"
S.T.E.P.S., INC., a Utah NETGATEWAY, INC., a Nevada
corporation corporation
By: /s/ R. Scott Beebe By: /s/ KOF
------------------------ ------------------------
Its: Vice - President Its: CEO
------------------------ ------------------------
Address: 1845 Baywood Dr. Address: [ILLEGIBLE]
Salt Lake City,Utah Long Beach CA
84117
"KHALED" "BEEBE"
/s/ Michael Khaled /s/ R. Scott Beebe
- ----------------------------- -----------------------------
Michael Khaled, an individual Scott Beebe, an individual
Address: [ILLEGIBLE] Address: 1845 Baywood Dr.
[ILLEGIBLE] Salt Lake City, Utah
[ILLEGIBLE] 84117
"DANKS"
/s/ Donald Danks
- -----------------------------
Donald Danks, an individual
Address: 1821 Port Stanhope Place
Newport Beach, CA
[ILLEGIBLE]
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<PAGE>
EMPLOYMENT AGREEMENT, dated as of June 1, 1999 (the "Agreement"),
between Netgateway, Inc., a corporation organized under the laws of
the State of Nevada (the "Company"), Netgateway, a corporation
organized under the laws of the State of Nevada and a wholly owned
subsidiary of the Company (the "Employer") and John M. Wendel (the
"Executive").
- --------------------------------------------------------------------------------
The Company and the Employer desires to retain the Executive to supply
services to the Company and the Employer, and the Executive desires to provide
the services to the Company and the Employer, on the terms and subject to the
conditions set forth in this Agreement.
In consideration of (i) the Executive's agreement to supply the
services under this Agreement and (ii) the mutual agreements set forth below,
the sufficiency of which is hereby acknowledged, the Company, the Employer and
the Executive agree as follows:
1. SERVICES; TERM.
(a) The Employer hereby employs the Executive, and the Executive
hereby agrees to be employed by the Employer, as a Senior Vice President of the
Employer, and the Executive will use his best efforts to perform services for
the Employer in accordance with directions given to Executive from time to time
by the Board of Directors of the Company (the "Board").
(b) The Executive shall participate in the operation of the
business of the Employer (the "Business"), and assume and perform all duties and
responsibilities consistent with his title and position (the "Services") as from
time to time requested by the Employer. In particular, the Executive shall be
primarily responsible for the development and operation of the Employer's call
center in American Fork, UT
(c) The Executive shall be employed for the period commencing on
the date of this Agreement (the "Effective Date") and ending on May 31, 2001,
unless sooner terminated pursuant to the provisions of this Agreement (such
period being referred to as the "Employment Period"); PROVIDED, HOWEVER, that on
the anniversary of the Effective Date (and on each succeeding anniversary of the
Effective Date during the Employment Period), the Employment Period shall
automatically be extended by an additional year (unless the Company, the
Employer or Executive shall give the other at least 60 days' notice to the
contrary).
<PAGE>
2. PERFORMANCE BY EXECUTIVE. During the Employment Period, the
Executive shall devote all of his business time, attention, knowledge and skills
to, and use his best efforts to perform, the Services and shall promote the
interests of the Employer in carrying out the Services. Other than the
restrictions contained in Sections 5 and 6 of this Agreement, nothing herein
shall be deemed to preclude the Executive from continuing to serve on the board
of directors of any business corporation or any charitable organization on which
he now serves or, subject to the prior approval of the Board, from accepting
appointment to additional boards of directors, provided that such activities do
not materially interfere with the performance of Executive's duties hereunder.
3. COMPENSATION AND BENEFITS. During the Employment Period:
(a) BASE COMPENSATION. As compensation for the Services, the
Company shall pay Executive an annual base salary at the rate of $130,000 per
year or such higher amount as the Company's Compensation Committee (the
"Committee") may from time to time determine (the "Base Salary"), payable in
accordance with the Employer's payroll practices.
(b) CASH BONUSES. (i) During the first year of this
Agreement, Executive shall be entitled to a cash signing bonus in the amount of
$40,000, which Executive acknowledges he has received as of the date hereof, and
a cash bonus in the amount of $30,000, which may be earned over the course of
the first year on a pro rata basis by attaining certain quarterly performance
goals determined by the Company, as set forth on Exhibit A hereto (the "First
Year Performance Goals").
(ii) During the second year of this Agreement, Executive shall be
entitled to cash bonus in the amount of $70,000, which may be earned over the
course of the first year on a pro rata basis by attaining certain quarterly
performance goals determined by the Company, as set forth on Exhibit A hereto
(the "Second Year Performance Goals").
(c) STOCK OPTIONS. The Executive will be granted options
pursuant to the Employer's 1999 Stock Option Plan for Non-Executives (the
"Options") to purchase up to 100,000 shares of the common stock, par value $.01
per share, of the Company, on terms and conditions to be embodied in a separate
agreement between the Employer and the Executive (the "Option Agreement"). The
Executive shall also be eligible to receive additional option grants in the
amount of up to 50,000 at the end of each of the first two years of this
Agreement based upon Executive attaining the First Year Performance Goals and
Second Year Performance Goals, respectively (the "Bonus Options").
(d) BENEFIT PLANS. The Executive shall be entitled to receive
benefits from the Employer consistent with those in effect for the Employer's
senior executives, as those benefits are revised from time to time by the Board
of Directors of the Employer. Except as specifically provided in this Section
3, nothing contained herein
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<PAGE>
is intended to require the Employer to maintain any existing benefits or create
any new benefits.
(e) VACATIONS AND HOLIDAYS. The Executive shall be entitled to
vacation and paid holidays in accordance with the Employer's policy.
4. TERMINATION.
(a) DEATH OR DISABILITY. If the Executive dies during the
Employment Period, the Employment Period shall terminate as of the date of the
Executive's death. If the Executive becomes unable to perform the Services for
180 consecutive days due to a physical or mental disability, (i) the Employer
may elect to terminate the Employment Period any time thereafter, and (ii) the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician acceptable to both the Employer
and the Executive, or, in case the Employer and the Executive cannot agree upon
a physician within 15 days, then by a physician selected by physicians
designated by each of the Employer and the Executive. The Executive's failure
to submit to any physical examination by such physician after such physician has
given reasonable notice of the time and place of such examination shall be
conclusive evidence of the Executive's inability to perform his duties
hereunder.
(b) CAUSE. The Company or the Employer, at its option, may
terminate the Employment Period and all of the obligations of the Company and
the Employer under this Agreement for Cause. The Employer shall have "Cause" to
terminate the Executive's employment hereunder in the event of (i) the
Executive's conviction of, or plea of guilty or NOLO CONTENDERE to a felony,
(ii) the Executive's gross negligence in the performance of the Services, which
is not corrected within 15 business days after written notice, (iii) the
Executive's knowingly dishonest act, or knowing bad faith or willful misconduct
in the performance of the Services to the material detriment of the Company,
which is not corrected within 15 business days after written notice, or (iv) the
Executive's other material breach of his obligations under this Agreement, which
is not corrected within a reasonable period of time (determined in light of the
cure appropriate to such material breach, but in no event less than 15 business
days) after written notice.
(c) WITHOUT CAUSE. The Company or the Employer, at its option,
may terminate the Employment Period without Cause at any time upon 30 days
advance written notice.
(d) TERMINATION BY EXECUTIVE FOR GOOD REASON. The Executive may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined below) if the basis for such Good Reason is not cured
within a reasonable period of time (determined in light of the cure appropriate
to the basis of such Good Reason, but in no event less than 15 business days)
after the Employer receives written notice specifying the basis of such Good
Reason. "Good Reason" shall mean (i) the failure of the Employer to pay any
undisputed amount due under this Agreement or a
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<PAGE>
substantial diminution in benefits provided under this Agreement, (ii) a
substantial diminution in status, position and responsibilities of the
Executive, (iii) the Employer requiring the Executive to be based at any office
or location that requires a relocation or commute greater than 50 miles from the
office or location to which the Executive is currently assigned, or (iv) the
Employer's other material breach of his obligations under this Agreement.
(e) WITHOUT GOOD REASON. The Executive, at his option, may
terminate the Employment Period without Good Reason at any time upon 30 days
advance written notice.
(f) PAYMENTS IN THE EVENT OF TERMINATION. Upon the termination
of the Employment Period for death, disability, by the Executive without Good
Reason, or by the Employer for Cause, the Employer shall pay to the Executive,
or his estate, as the case may be, the Base Salary and Performance Bonus earned
to the date of death or termination for disability or Cause, as the case may be.
In addition, all vested and unexercised Options shall remain exercisable by the
Executive for a period of 365 days. Upon the termination of the Employment
Period by the Employer without Cause or by the Executive for Good Reason, the
Employer shall pay to the Executive (A) the Base Salary and Performance Bonus
earned to the date of such termination, and (B) an additional amount in a lump
sum in cash equal to the Base Salary at the time of termination for a period
beginning on the date of such termination, and ending on the date that the
Employment Period would have ended pursuant to this Agreement had there been no
termination of Executive's employment, provided that in no event shall such
period be less than six months. In addition, all vested and unexercised Options
shall become and remain exercisable by the Executive until the expiration date
of the Options pursuant to the Option Agreement.
(g) TERMINATION FOLLOWING A CHANGE IN CONTROL. If, within the
one year period following a Change in Control (as defined below), (X)
Executive's employment is terminated by the Company or by the Employer for any
reason other than Executive's death or disability or for Cause, or (Y) Executive
terminates his employment for Good Reason, (i) the Company or the Employer shall
pay Executive as severance a lump sum amount equal to the sum of (1) Executive's
then Base Salary plus (2) Executive's highest annual Performance Bonus in the
three year period immediately preceding such Change in Control and (B) the
present value of all other benefits otherwise payable through the then remaining
Employment Period under Sections 3(d) and 3(f) of this Agreement, and (ii) the
Bonus Options shall be deemed granted and together with all other outstanding
equity incentive awards shall immediately vest, and Executive shall be entitled
to receive a lump sum amount equal to the "spread" on any then outstanding stock
options or similar awards held by Executive in exchange for the surrender and
cancellation of such awards. A Change in Control shall be deemed to have
occurred if any of the following conditions shall have been satisfied: (i) any
"person" as such term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company;
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company; or any company
4
<PAGE>
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership at such time of stock of
the Company), is or becomes after the Effective Date the "beneficial owner" (as
defined in Rules 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not included in the securities beneficially owned by
such person any securities acquired directly from the Company) representing 35%
or more of the combined voting power of the Company's then outstanding
securities, (ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board of Directors, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described within this definition of Change in
Control) whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of the
Board of Directors then still in office who either were members of the Board of
Directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof, (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other entity and, in connection with such
merger or consolidation, individuals who constitute the Board of Directors
immediately prior to the time any agreement to effect such merger or
consolidation is entered into fail for any reason to constitute at least a
majority of the board of directors of the surviving corporation following the
consummation of such merger or consolidation, or (iv) the stockholders of the
Company approve (a) a plan of complete liquidation of the Company or (b) an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(h) EXCISE TAX GROSS UP. In the event any of the payments
hereunder shall become subject to the excise tax imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), or any similar or
successor provision of federal, state or local law, the Company or the Employer
shall pay to Executive such additional amounts as may be necessary to offset
fully the tax effects of such excise tax or taxes, in accordance with the
procedures set forth in Exhibit A hereto.
(i) TERMINATION OF OBLIGATIONS. In the event of termination of
the Employment Period in accordance with this Section 4, all obligations of the
Employer and the Executive under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Sections 4(f), 4(g)
and 4(h) of this Agreement; PROVIDED, HOWEVER, that notwithstanding anything to
the contrary in this Agreement, the provisions of Section 5 and Section 6 shall
survive such termination in accordance with their respective terms, and the
relevant provisions of Section 7 shall survive such termination indefinitely.
In the event of termination of the Employment Period in accordance with this
Section 4, the Executive agrees to cooperate with the Employer in order to
ensure an orderly transfer of the Executive's duties and responsibilities.
5. CONFIDENTIALITY; NON-DISCLOSURE.
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<PAGE>
(a) Except as provided in this Section 5(a), the Executive shall
not disclose any confidential or proprietary information of the Company and the
Employer or of their affiliates or subsidiaries to any person, firm,
corporation, association or other entity (other than the Company, the Employer,
their subsidiaries, officers or executives, attorneys, accountants, bank
lenders, agents, advisors or representatives thereof) for any reason or purpose
whatsoever (other than in the normal course of business on a need-to-know basis
after the Company or the Employer has received assurances that the confidential
or proprietary information shall be kept confidential), nor shall the Executive
make use of any such confidential or proprietary information for his own
purposes or for the benefit of any person, firm, corporation or other entity,
except the Company and the Employer. As used in this Section 5(a), the term
"confidential or proprietary information" means all information which is or
becomes known to the Executive and relates to matters such as trade secrets,
research and development activities, new or prospective lines of business
(including analysis and market research relating to potential expansion of the
business), books and records, financial data, customer lists, marketing
techniques, financing, credit policies, vendor lists, suppliers, purchases,
potential business combinations, services procedures, pricing information and
private processes as they may exist from time to time; PROVIDED that the term
"confidential or proprietary information" shall not include information that is
or become generally available to the public (other than as a result of a
disclosure in violation of this Agreement by the Executive or by a person who
received such information from the Executive in violation of this Agreement).
(b) If the Executive is requested or (in the opinion of his
counsel) required by law or judicial order to disclose any confidential or
proprietary information, the Executive shall provide the Company or the Employer
with prompt notice of any such request or requirement so that the Company or the
Employer may seek an appropriate protective order or waiver of the Executive's
compliance with the provisions of this Section 5(a). The Executive will not
oppose any reasonable action by, and will cooperate with, the Employer to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. If,
failing the entry of a protective order or the receipt of a waiver hereunder, he
is, in the opinion of his counsel, compelled by law to disclose a portion of the
confidential or proprietary information, the Executive may disclose to the
relevant tribunal without liability hereunder only that portion of the
confidential or proprietary information which counsel advises the Executive he
is legally required to disclose, and each of the parties hereto agrees to
exercise such party's best efforts to obtain assurance that confidential
treatment will be accorded such confidential or proprietary information. During
the Employment Period, and for matters arising from events or circumstances
occurring during the Employment Period, the Company and the Employer will
provide for the defense of matters arising under this provision.
6. NON-SOLICITATION. The Executive agrees that he shall not,
during and for the period commencing on the Effective Date and ending on the
date that is one year after the termination of the Employment Period, for any
reason whatsoever, either individually or as an officer, director, stockholder,
partner, agent or principal of
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<PAGE>
another business firm, induce any executive of the Company, the Employer or any
of their affiliates or subsidiaries to terminate such person's employment with
the Company, the Employer or such affiliate or subsidiary or hire any executive
of the Company, the Employer or any of their affiliates to work with any
business affiliated with the Executive, provided, that the provisions of this
Section 6 shall not apply in the event that the Company or the Employer
materially breaches its obligations under this Agreement.
7. GENERAL PROVISIONS
(a) ENFORCEABILITY. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the
Executive, the Company and the Employer consider the restrictions contained in
this Agreement to be reasonable for the purpose of preserving the Employer's
goodwill and proprietary right, if any particular provision of this Agreement
shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. It
is expressly understood and agreed that although the Company, the Employer and
the Executive consider the restrictions contained in Section 6 to be reasonable,
if a final determination is made by a court of competent jurisdiction that the
time or territory or any other restriction contained in this Agreement is
unenforceable against the Executive, the provisions of this Agreement shall be
deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable.
(b) REMEDIES. The parties acknowledge that the Company's and
the Employer's damages at law would be an inadequate remedy for the breach by
the Executive of any provision of Section 5 or Section 6, and agree in the event
of such breach that the Company or the Employer may obtain temporary and
permanent injunctive relief restraining the Executive from such breach, and, to
the extent permissible under the applicable statutes and rules of procedure, a
temporary injunction may be granted immediately upon the commencement of any
such suit. Nothing contained herein shall be construed as prohibiting the
Company or the Employer from pursuing any other remedies available at law or
equity for such breach or threatened breach of Section 5 or Section 6 of this
Agreement.
(c) WITHHOLDING. The Employer shall withhold such amounts from
any compensation or other benefits referred to herein as payable to the
Executive on account of payroll and other taxes as may be required by applicable
law or regulation of any governmental authority.
(d) ASSIGNMENT; BENEFIT. This Agreement is personal in its
nature and the parties hereto shall not, without the written consent of the
other, assign or transfer this Agreement or any rights or obligations hereunder;
PROVIDED that the
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provisions hereof shall inure to the benefit of, and be binding upon, each
successor of the Company and the Employer, whether by merger, consolidation,
transfer of all or substantially all of its assets, or otherwise.
(e) INDEMNITY. The Company and the Employer hereby agrees to
indemnify and hold the Executive harmless consistent with the Employer's policy
against any and all liabilities, expenses (including attorneys' fees and costs),
claims, judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any proceeding arising out of the Executive's
employment with the Employer (whether civil, criminal, administrative or
investigative, other than proceedings by or in the right of the Company or the
Employer), if with respect to the actions at issue in the proceeding the
Executive acted in good faith and in a manner Executive reasonably believed to
be in, or not opposed to, the best interests of the Company and the Employer,
and (with respect to any criminal action) Executive had no reason to believe
Executive's conduct was unlawful. Said indemnification arrangement shall (i)
survive the termination of this Agreement, (ii) apply to any and all qualifying
acts of the Executive which have taken place during any period in which he was
employed by the Employer, irrespective of the date of this Agreement or the term
hereof, including, but not limited to, any and all qualifying acts as an officer
and/or director of any affiliate while the Executive is employed by the Employer
and (iii) be subject to any limitations imposed from time to time under
applicable law.
(f) NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
If to the Employer:
NetGateway
300 Oceangate
Long Beach, CA 90802
Attention: Secretary
Facsimile: 562-308-0021
With a copy to
NetGateway, Inc.
300 Oceangate
Long Beach, CA 90802
Attention: General Counsel
Facsimile: 562-308-0021
If to the Executive:
John M. Wendel
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<PAGE>
1224 East Murdock Drive
American Fork , UT 84003
Facsimile: 801-___-____
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is mailed, such communication shall be deemed to have been
given on the fifth business day following the date on which such communication
is posted.
(g) DISPUTE RESOLUTION; ATTORNEYS' FEES. The Company, the
Employer and the Executive agree that any dispute arising as to the parties'
rights and obligations hereunder shall be resolved by binding arbitration before
a private judge to be determined by mutually agreeable means. In such event,
each of the Company, the Employer and the Executive shall have the right to full
discovery. The Executive shall have the right, in addition to any other relief
granted by such arbitrator, to attorneys' fees in the event that a claim brought
by the Executive is decided in the Executive's favor (with the amount of such
fees being limited to those expended defending the claim or claims decided in
favor of the Executive). Any judgment by such arbitrator may be entered into
any court with jurisdiction over the dispute.
(h) ACKNOWLEDGEMENT. Executive acknowledges that he has been
advised by Employer to seek the advice of independent counsel prior to reaching
agreement with Employer or any of the terms of this Agreement.
(i) AMENDMENTS AND WAIVERS. No modification, amendment or
waiver, of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(j) DESCRIPTIVE HEADINGS; CERTAIN INTERPRETATIONS. Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(k) COUNTERPARTS; ENTIRE AGREEMENT. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement and the Option Agreement contain the
entire agreement among the parties with respect to the transactions contemplated
by this Agreement and the Option Agreement and supersede all prior agreements or
understandings among the parties with respect to the Executive's employment by
the Employer.
(l) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
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(m) CONSENT TO JURISDICTION. EACH OF THE COMPANY, THE EMPLOYER
AND THE EXECUTIVE HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN LOS
ANGELES COUNTY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND THE EXECUTIVE
AGREES NOT TO COMMENCE ANY LEGAL PROCEEDING RELATING THERETO EXCEPT IN SUCH
COURT. EACH OF THE COMPANY, THE EMPLOYER AND THE EXECUTIVE IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH HE MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH
A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NETGATEWAY, INC.
By:
------------------------------
Name:
Title:
NETGATEWAY
By:
------------------------------
Name:
Title:
------------------------------------
John M. Wendel
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EXHIBIT B
GROSS-UP PAYMENT
In the event that any payment received by Executive or paid by the
Company or the Employer on behalf of Executive under this Agreement or under any
other plan, arrangement or agreement with the Company, the Employer or any
person whose actions result in a Change in Control (provided that the Company
and the Employer approve of the arrangement pursuant to which the payment by
such person is made to Executive) or any person affiliated with the Company or
the Employer or such person (collectively, the "Total Payments") will be subject
to the excise tax (the "Excise Tax") imposed by Section 4999 of the Code, the
Company or the Employer shall pay to Executive an additional amount (the
"Gross-Up Payment") such that the net amount retained or to be retained by
Executive, after deduction of any Excise Tax on the Total Payments and on any
Federal, state and local income, excise and/or other taxes upon the Gross-Up
Payment provided for hereunder, shall be equal to the Total Payments.
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) the Total
Payments shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by the Company's independent
auditors and reasonably acceptable to Executive, the Total Payments (in whole or
in part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors in
accordance with the principles of Section 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income and other taxes at the highest
applicable marginal rate of taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income and other taxes at the highest
applicable marginal rate of taxation in the state and locality of Executive's
residence on the date the Gross-Up Payment is to be made, net of the maximum
reduction in Federal income taxes which could be obtained from deduction of such
state and local taxes and any other taxes. In the event that the Excise Tax is
subsequently determined to be less than the amount originally taken into account
hereunder, Executive shall repay to the Company or to the Employer, as the case
may be, at the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax and
Federal, state and local income and other taxes imposed on the Gross-Up Payment
being repaid by Executive to the extent that such repayment results in an actual
reduction in Excise Tax and/or a Federal, state or local income tax deduction)
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code (provided, however, that if all or any portion of the
amount of any repayment made to Executive by any governmental entity shall be
made at a higher rate of interest than that provided under Section 1274(b)(2)(B)
of the Code (the "Higher Interest Rate Amount"), Executive shall also repay to
the Company or to the Employer, as the case may be, interest on the Higher
Interest Rate Amount at a rate equal to the excess of such higher rate of
interest over the rate provided under Section 1274(b)(2)(B) of the Code). In the
event that the Excise Tax is determined to exceed the amount originally taken
into account hereunder (including
12
<PAGE>
by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company or the Employer,
as the case may be, shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions to tax payable by
Executive with respect to such excess) at the time that the amount of such
excess is finally determined. The parties agree that such excess will be
considered to have been finally determined at the conclusion of Internal
Revenue Service administrative appellate proceedings, unless the parties
mutually agree to pay or settle such amount earlier, or agree to pursue an
appeal further. Each of Executive, the Company and the Employer shall
reasonably cooperate with each other in connection with any administrative or
judicial proceedings concerning the existence or amount of liability for
Excise Tax with respect to the Total Payments. In the event of an audit or
other administrative or judicial proceeding relating to or arising from the
issue of potential liability for the Excise Tax, the Company shall pay all
attorneys' and accountants' fees and other costs reasonably incurred by the
Executive in connection with the audit or other proceeding to the extent such
fees and costs relate to such liability, provided, that in the case of
judicial or administrative proceedings, the Company consents to the pursuit
of such proceedings.
The Gross-Up Payment payable pursuant hereto shall be payable (or, as
applicable, withheld), in whole or in part as applicable, on the earlier of (i)
the date the Company or the Employer is required to withhold the Excise Tax
pursuant to Section 4999 of the Code, or (ii) the date the Executive is required
to pay the Excise Tax.
Executive shall notify the Company and the Employer of any audit or
review by the Internal Revenue Service of Executive's Federal income tax return
for the year in which a payment under this Agreement is made within ten days of
Executive's receipt of such audit or review. In addition, Executive shall also
notify the Company and the Employer of the final resolution of such audit or
review within then days of such resolution.
13
<PAGE>
EXHIBIT 23.1.1
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
October 14, 1999
<PAGE>
EXHIBIT 23.1.2
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
October 14, 1999
<PAGE>
EXHIBIT 23.2
WRIGHT FORD YOUNG & CO.
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS, INC.
The Members
Infobahn Technologies, LLC (d/b/a Digital Genesis):
We consent to the inclusion of our report dated April 20, 1999, with respect
to the balance sheets of Infobahn Technologies, LLC (d/b/a Digital Genesis) as
of December 31, 1997 and 1996, and the related statements of operations,
members' equity and cash flows for the years then ended, which report appears in
the Form S-1 of Netgateway, Inc., reference number: 333-79751 and reference to
our firm under the heading "Experts" in the prospectus..
/s/ WRIGHT FORD YOUNG & CO.
- --------------------------------------
WRIGHT FORD YOUNG & CO.
Dated: July 20, 1999
<PAGE>
EXHIBIT 23.3
October 14, 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: October 14, 1999
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Keith D. Freadhoff, Donald M. Corliss, Jr.,
and David Bassett-Parkins, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, and in any and all
capacities, to sign any and all amendments to the Registration Statement
(Registration No. 333-79751), including post-effective amendments and
registration statements filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended and otherwise, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting to said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform such and
every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
/s/ ROY W. CAMBLIN III
------------------------------
Name: Roy W. Camblin III
<PAGE>
EXHIBIT 24.5
CONSENT
I, Roy W. Camblin III, consent to the inclusion in the registration
statement on Form S-1 (Registration No. 333-79751) under the Securities Act of
1933, as amended, of my name and biography under the caption "Management" as a
director-nominee of the Board of Directors of the Company.
/s/ ROY W. CAMBLIN III
--------------------------------------
Name: Roy W. Camblin III
<PAGE>
EXHIBIT 24.6
CONSENT
I, James T. Demetriades, consent to the inclusion in the registration
statement on Form S-1 (Registration No. 333-79751) under the Securities Act of
1933, as amended, of my name and biography under the caption "Management" as a
director-nominee of the Board of Directors of the Company.
/s/ JAMES T. DEMETRIADES
--------------------------------------
Name:
<PAGE>
EXHIBIT 24.7
CONSENT
I, John Dillon, consent to the inclusion in the registration statement on
Form S-1 (Registration No. 333-79751) under the Securities Act of 1933, as
amended, of my name and biography under the caption "Management" as a
director-nominee of the Board of Directors of the Company.
/s/ JOHN DILLON
--------------------------------------
Name: John Dillon
