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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
NETGATEWAY, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
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NETGATEWAY, INC.
300 OCEANGATE, 5(TH) FLOOR
LONG BEACH, CALIFORNIA 90802
562-308-0010
May 1, 2000
To Our Stockholders:
On behalf of the Board of Directors of Netgateway, Inc., we cordially invite
you to attend the special meeting of stockholders of Netgateway to be held at
the Hilton Hotel--Long Beach, located at Two World Trade Center, Pacific II,
Long Beach, California, on Wednesday, May 24, 2000 at 2:00 p.m., Pacific
Daylight Time. A notice of special meeting, proxy card and a proxy statement
containing information about the matters to be acted upon at the special meeting
are enclosed.
At the meeting, you will be asked to: (i) approve an amendment to
Netgateway's bylaws to adopt a classified board of directors so that only
one-half of the directors would be elected annually, (ii) elect six
(6) directors, (iii) approve an amendment to Netgateway' certificate of
incorporation increasing the number of authorized shares of common stock from
40,000,000 to 250,000,000, (iv) approve the Netgateway, Inc. 1999 Stock Option
Plan for Non-Executives, (v) approve an increase in the number of shares of our
common stock reserved for issuance under the 1999 Stock Option Plan for Non-
Executives from 2,000,000 shares to 5,000,000 shares and (vi) ratify the
appointment of KPMG LLP as Netgateway's independent auditors for our 1999 and
2000 fiscal years. The accompanying notice of special meeting and proxy
statement describe these proposals. We encourage you to read this information
carefully.
We urge you to attend the meeting. Your participation in the affairs of
Netgateway is important. The meeting is an excellent opportunity for
Netgateway's management to discuss our progress with you in person.
Whether in person or by proxy, it is important that your shares be
represented at the meeting. To ensure your participation in the meeting,
regardless of whether you intend to attend in person, please complete, sign,
date and return the enclosed proxy promptly. If you attend the meeting, you may
revoke your proxy at that time and vote in person, if you wish, even if you have
previously returned your proxy card.
We look forward to seeing you at the special meeting.
Sincerely,
/s/ KEITH D. FREADHOFF
Keith D. Freadhoff
CHAIRMAN OF THE BOARD OF DIRECTORS
/s/ ROY W. CAMBLIN III
Roy W. Camblin III
CHIEF EXECUTIVE OFFICER
<PAGE>
NETGATEWAY, INC.
300 OCEANGATE, 5(TH) FLOOR
LONG BEACH, CALIFORNIA 90802
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
MAY 24, 2000
2:00 P.M. PACIFIC DAYLIGHT TIME
------------------------
To the stockholders of Netgateway, Inc.:
NOTICE is hereby given that a special meeting of stockholders of
Netgateway, Inc., a Delaware corporation, will be held on Wednesday, May 24,
2000 at the Hilton Hotel--Long Beach, located at Two World Trade Center, Pacific
II, Long Beach, California, at 2:00 p.m., Pacific Daylight Time for the
following purposes:
1. To approve an amendment to Netgateway's bylaws to adopt a classified
board of directors so that only one-half of the directors would be
elected annually;
2. To elect three (3) directors to hold office until the annual meeting of
stockholders following the end of Netgateway's fiscal year 2000, and
three (3) directors to hold office until the annual meeting of
stockholders following the end of Netgateway's fiscal year 2001, or if
the proposed amendment in Item 1 is not approved, until the next annual
meeting of stockholders, and until their successors have been duly
elected and qualified;
3. To approve an amendment to Netgateway's certificate of incorporation
increasing the number of authorized shares of common stock from
40,000,000 to 250,000,000;
4. To approve the Netgateway, Inc. 1999 Stock Option Plan for
Non-Executives;
5. To approve an increase in the number of shares of our common stock
reserved for issuance under the 1999 Stock Option Plan for Non-Executives
from 2,000,000 shares to 5,000,000 shares;
6. To ratify the appointment of KPMG LLP as our independent auditors for
our 1999 and 2000 fiscal years; and
7. To consider and transact such other business as may properly come before
the special meeting or any adjournment of the meeting.
The items of business are more fully described in the proxy statement
accompanying this notice. Only stockholders of record at the close of business
on April 28, 2000 may vote at the meeting or any adjournment or postponement of
the meeting.
Your vote is important. Please complete, sign, date and return your proxy
card in the enclosed envelope promptly.
By Order of the Board of Directors
/s/ CRAIG S. GATARZ
Craig S. Gatarz
SECRETARY
Long Beach, California
May 1, 2000
<PAGE>
NETGATEWAY, INC.
300 OCEANGATE, 5(TH) FLOOR
LONG BEACH, CA 90802
------------------------
PROXY STATEMENT
---------------------
The accompanying proxy is solicited by the Board of Directors of
Netgateway, Inc., a Delaware corporation, to be used at the meeting of
stockholders. The meeting will be held on Wednesday, May 24, 2000, to be held at
the Hilton Hotel--Long Beach, located at Two World Trade Center, Pacific II,
Long Beach, California, at 2:00 p.m., Pacific Daylight Time. This proxy
statement and the enclosed form of proxy card are being sent to stockholders on
or about May 2, 2000.
At the meeting, stockholders will be asked to consider and vote upon the
following items:
<TABLE>
<S> <C>
ITEM I. To approve an amendment to Netgateway's bylaws to adopt a
classified board of directors so that only one-half of the
directors would be elected annually;
ITEM II. To elect three (3) directors to hold office until the annual
meeting of stockholders following the end of Netgateway's
fiscal year 2000, and three (3) directors to hold office
until the annual meeting of stockholders following the end
of Netgateway's fiscal year 2001, or if the proposed
amendment in Item 1 is not approved, until the next annual
meeting of stockholders, and until their successors have
been duly elected and qualified;
ITEM III. To approve an amendment to Netgateway's certificate of
incorporation increasing the number of authorized shares of
common stock from 40,000,000 to 250,000,000;
ITEM IV. To approve the Netgateway, Inc. 1999 Stock Option Plan for
Non-Executives;
ITEM V. To approve an increase in the number of shares of our common
stock reserved for issuance under the 1999 Stock Option Plan
for Non-Executives from 2,000,000 shares to 5,000,000
shares;
ITEM VI. To ratify the appointment of KPMG LLP as our independent
auditors for our 1999 and 2000 fiscal years; and
ITEM VII. To consider and transact such other business as may properly
come before the special meeting or any adjournment of the
meeting.
</TABLE>
The annual report to stockholders enclosed is not to be regarded as proxy
soliciting material. If you would like an additional copy, please contact the
Company at 300 Oceangate, 5th Floor, Long Beach, California 90802, Attn:
Investor Relations, telephone: (562) 308-0010.
The Board of Directors of Netgateway believes that the election of its
director nominees and the approval of Items I, III, IV, V and VI are in the best
interests of Netgateway and its stockholders and recommends to the stockholders
that they approve each of the nominees and each of Items I, III, IV, V and VI.
1
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VOTING
VOTING AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by Netgateway's board of directors for
use at the special meeting. A proxy may be revoked at any time prior to its use
by: (1) delivering to our Secretary a signed notice of revocation or a later
dated proxy, (2) attending the special meeting and voting in person or
(3) giving notice of revocation of the proxy at the special meeting. Attendance
at the special meeting will not in itself constitute the revocation of a proxy.
Prior to the special meeting, any written notice of revocation should be sent to
Netgateway, Inc., 300 Oceangate, 5th Floor, Long Beach, California 90802,
Attention: Corporate Secretary. Any notice of revocation that is delivered at
the special meeting should be hand delivered to our Secretary at or before the
vote is taken. A stockholder may be requested to present identification
documents for the purpose of establishing such stockholder's identity. This
proxy statement, the accompanying proxy card and the annual report to
stockholders are being mailed or otherwise distributed to stockholders on or
about May 2, 2000.
The shares of Netgateway common stock, par value $.001, represented by
properly executed proxies will be voted in accordance with the instructions
indicated on such proxies. If no specific instructions are given, the shares
will be voted FOR approval of the amendment to the bylaws to provide for a
classified board of directors, FOR the election of the nominees for director set
forth herein, FOR approval of the amendment to the certificate of incorporation
increasing the number of authorized shares of our common stock, FOR approval of
the 1999 Stock Option Plan for Non-Executives, FOR approval of an increase in
the number of shares of Netgateway common stock reserved for issuance under the
1999 Stock Option Plan for Non-Executives and FOR ratification of KPMG LLP as
the firm of independent auditors to audit the consolidated financial statements
of Netgateway and its subsidiaries for fiscal years 1999 and 2000. In addition,
if other matters come before the special meeting, the persons named in the
accompanying form of proxy will vote in accordance with their best judgment with
respect to such matters.
RECORD DATE, VOTING RIGHTS AND OUTSTANDING SHARES
The board of directors has fixed the close of business on April 28, 2000 as
the record date for the determination of stockholders entitled to receive notice
of and to vote at the special meeting and any adjournment or postponement of the
meeting. Only holders of record of common stock on April 28, 2000 are entitled
to vote at the special meeting. Each holder of record of common stock at the
close of business on April 28, 2000 is entitled to one vote per share on each
matter to be voted upon by the stockholders at the special meeting. As of
April 28, 2000, there were 17,497,727 shares of Common Stock issued and
outstanding.
QUORUM, VOTING REQUIREMENTS AND EFFECT OF ABSTENTIONS AND NON-VOTES
At the special meeting, inspectors of election will determine the presence
of a quorum and tabulate the results of the voting by stockholders. The holders
of a majority of the total number of outstanding shares of stock that are
entitled to vote at the meeting must be present in person or by proxy in order
to have the quorum that is necessary for the transaction of business at the
special meeting. The inspectors will treat properly executed proxies marked
"ABSTAIN" or required to be treated as "non-votes" as present for purposes of
determining whether there is a quorum at the special meeting. A "non-vote"
occurs when a broker or nominee holding shares for a beneficial owner votes on
one proposal, but does not vote on another proposal because the broker or
nominee does not have discretionary voting power and has not received
instructions from the beneficial owner.
The six (6) nominees for director who receive a plurality of the votes cast
by the holders of Netgateway common stock, in person or by proxy at the special
meeting, will be elected. All other matters will require the approval of a
majority of the votes cast by holders of Netgateway common stock, in person or
by proxy at the special meeting.
Netgateway stockholders have no dissenters' or appraisal rights in
connection with Items I, II, III, IV, V or VI.
2
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AMENDMENT TO THE BYLAWS
TO CREATE A CLASSIFIED BOARD OF DIRECTORS
(ITEM I)
At the meeting, we will ask the stockholders to approve an amendment to our
bylaws providing for two-year staggered terms of the members of the board of
directors. The board of directors has approved and recommends that our
stockholders approve an amendment to our bylaws providing for the classification
of the board of directors into two classes with staggered two-year terms of
office and the ability of the stockholders to remove directors, with cause, by
majority vote.
Our certificate of incorporation does not currently contain any provisions
regarding the term of service or removal of directors. The election of directors
is currently governed by our bylaws, which provide that all directors are to be
elected annually for a term of one year. As a Delaware corporation with
significant operations in California, Netgateway may be subject to certain
provisions of California corporation law. To the extent Netgateway is subject to
California law, certain aspects regarding the election of our directors may be
affected. Both California and Delaware law permit provisions in a certificate of
incorporation or bylaw approved by stockholders that provide for a classified
board of directors. The proposed classified board amendment would provide that
our directors will be classified into two classes (denominated Class I and Class
II), which shall be as nearly equal in number as possible. If the classified
board amendment is adopted, three directors will be elected for a term expiring
at the annual meeting following the end of our fiscal year 2000 ("Class I"
directors) and three directors will be elected for a term expiring at the annual
meeting following the end of our fiscal year 2001 ("Class II" directors). At
each annual meeting following this initial classification and election, the
successors to the class of directors whose terms expire at that meeting would be
elected for a term of office to expire at the second succeeding annual meeting
after their election and until their successors have been duly elected and
qualified. See "Election of Directors" as to the composition of each class of
directors if this proposal is adopted.
Under California and Delaware law, the board of directors may fill vacancies
on a classified board, and the directors so appointed will hold office until the
next election of the class to which the director was appointed. Delaware law
also provides that, unless a corporation's certificate of incorporation provides
otherwise, directors serving on a classified board of directors may be removed
only for cause. Presently, under our bylaws, all of our directors are elected
annually and any or all may be removed, with cause, by a majority vote of the
outstanding shares entitled to vote with respect to an election of directors.
The board of directors believes that it is in our best interests to continue to
provide the holders of a majority of the shares entitled to vote with respect to
the election of directors with the ability to remove directors, with cause,
notwithstanding the adoption of a classified board of directors. To the extent
Netgateway is subject to California law, any or all of the directors may be
removed without cause if the removal is approved by a majority of the
outstanding shares of common stock, provided that a director of a classified
board may not be removed if the votes cast against removal would be sufficient
to elect the director if voted cumulatively (without regard to whether shares
are otherwise voted cumulatively) at an election at which the same number of
share votes were cast.
The proposed classified board amendment will significantly extend the time
required to effect a change in control of the board of directors and may
discourage hostile takeover bids for Netgateway. Currently, a change in control
of the board of directors can be made by stockholders holding a plurality of the
votes cast at a single annual meeting. If we implement a classified board of
directors, it will take at least two annual meetings to effectuate a change in
control of the board of directors, because a majority of the directors cannot be
elected at a single meeting. These effects are somewhat mitigated by preserving
the ability of a majority of the stockholders to remove any or all directors,
with cause, at a special meeting or by written consent.
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Because of the additional time required to change control of the board of
directors, the classified board amendment will tend to perpetuate present
management. Without the ability to obtain immediate control of the board of
directors, a takeover bidder will not be able to take action to remove other
impediments to its acquisition of Netgateway. Because the classified board
amendment will increase the amount of time required for a takeover bidder to
obtain control of Netgateway without the cooperation of the board of directors,
even if the takeover bidder were to acquire a majority of our outstanding stock,
it will tend to discourage certain tender offers, perhaps including some tender
offers that stockholders may feel would be in their best interests. The
classified board amendment will also make it more difficult for the stockholders
to change the composition of the board of directors even if the stockholders
believe such a change would be desirable.
The text of the classified board amendment is set forth below in
substantially the form in which it will take effect if the stockholders approve
it.
RESOLVED, THAT THE CORPORATION'S BYLAWS BE AMENDED BY DELETING SECTION 2.1
IN ITS ENTIRETY AND REPLACING IT WITH THE FOLLOWING:
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 Directors of not less than one nor more
than nine directors; PROVIDED, HOWEVER, that the Board of Directors, by
resolution adopted by vote of a majority of the then authorized number of
directors, may increase or decrease the number of directors. Each director shall
serve (subject to the provisions of Section 2.10 and Article IV) until his or
her term has expired and his or her successor is elected and qualified, or until
his or her earlier death, resignation or removal.
FURTHER RESOLVED, THAT THE CORPORATION'S BYLAWS BE AMENDED BY ADDING THE
FOLLOWING SECTION:
SECTION 2.10. ELECTION OF DIRECTORS.
(a) The directors shall be elected by the holders of shares entitled to vote
thereon at the record date fixed by the Board of Directors for the annual
meeting or special meeting, as the case may be, for the election of directors,
and the persons receiving the greatest number of votes, up to the number of
directors to be elected, shall be the directors. The election of directors is
subject to the provisions for a classified Board of Directors contained in this
Section 2.10.
(b) Effective upon the election of the directors at the special meeting of
stockholders scheduled for May 24, 2000 (or any postponement or adjournment
thereof) (the "Special Meeting"), the directors shall be divided into two
classes: Class I and Class II. Such classes shall be as nearly equal in number
of directors as possible. Each director shall serve for a term ending at the
annual meeting of stockholders for the second fiscal year following the annual
meeting for the fiscal year at which such director was elected; provided,
however, that the directors first elected to Class I at the Special Meeting
shall serve for a term ending at the annual meeting to be held for fiscal year
2000 and the directors first elected to Class II at the Special Meeting shall
serve for a term ending at the annual meeting to be held for fiscal year 2001.
(c) At each annual election held after the Special Meeting, the directors
chosen to succeed those whose terms then expire shall be identified as being of
the same class as the directors they succeed, unless, by reason of any
intervening changes in the authorized number of directors, the Board of
Directors shall designate one or more directorships whose term then expires as
directorships of the other class in order more nearly to achieve equality in the
number of directors between the classes. When the Board of Directors fills a
vacancy resulting from the death, resignation or removal of a director, the
director chosen to fill that vacancy shall be of the same class as the director
being
4
<PAGE>
succeeded, unless, by reason of any previous changes in the authorized number of
directors, the Board of Directors shall designate the vacant directorship as a
directorship of the other class in order more nearly to achieve equality in the
number of directors between the classes.
(d) Notwithstanding the rule that the two classes shall be as nearly equal
in number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such will
nevertheless continue as a director of the class of which such director is a
member, until the expiration of his or her current term or his earlier death,
resignation or removal. Any newly created directorship or vacancy on the Board
of Directors, consistent with the rule that the two classes shall be as nearly
equal in number of directors as possible, shall be allocated to one of the two
classes, and the Board of Directors shall allocate it to that of the available
class whose term of office is due to expire at the earliest date following such
allocation.
In order to be adopted, this amendment must receive the affirmative vote of
at least a majority of the outstanding shares entitled to vote, present in
person or represented by proxy.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
PROPOSAL TO AMEND THE BYLAWS TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS.
ELECTION OF DIRECTORS
(ITEM II)
At the meeting, six (6) directors are to be elected. If Item 1 is approved,
six (6) directors will be elected for the staggered terms set forth below. If
Item 1 is not approved, six (6) directors will be elected to hold office until
the next annual meeting of stockholders or until their successors have been duly
elected and qualified.
It is intended that valid proxies received will be voted, unless contrary
instructions are given, to elect the six (6) nominees named in the following
table to the directorship indicated therein. Should any nominee decline or be
unable to accept such nomination to serve as a director, an event that
Netgateway does not currently anticipate, the persons named in the enclosed
proxy reserve the right, in their discretion, to vote for a lesser number of or
for substitute nominees designated by the board of directors, to the extent
consistent with our certificate of incorporation and our bylaws.
Each of the six (6) nominees for director to be elected are currently
members of the board of directors. If elected, each of the six (6) director
nominees will hold office as specified in the table below and until his or her
respective successor is duly elected and qualified.
NOMINEES FOR ELECTION AS DIRECTORS TO HOLD OFFICE UNTIL THE 2000 ANNUAL
MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS WITH THE COMPANY COMMITTEES
- ---- -------- -------- -------------------------- ---------------------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff..... 41 1998 Chairman of the Board Finance
Donald M. Corliss, 50 1998 President, Finance
Jr................... Chief Operating Officer
R. Scott Beebe......... 48 1998 Non-Employee Director Compensation (Chairman),
Audit and Finance
</TABLE>
5
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NOMINEES FOR ELECTION AS DIRECTORS TO HOLD OFFICE UNTIL THE 2001 ANNUAL
MEETING OF STOCKHOLDERS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITIONS WITH THE COMPANY COMMITTEES
- ---- -------- -------- ---------------------------- ---------------------
<S> <C> <C> <C> <C>
Roy W. Camblin III....... 53 1999 Chief Executive Officer Finance
John Dillon.............. 50 1999 Non-Employee Director Compensation
Joseph Roebuck........... 64 2000 Non-Employee Director N/A
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE INCUMBENT
DIRECTORS IDENTIFIED ABOVE.
INFORMATION CONCERNING THE DIRECTOR NOMINEES FOR ELECTION
Set forth below is information with respect to the individuals who are
nominees for election to the board of directors of Netgateway who are standing
for election at the special meeting.
KEITH D. FREADHOFF
Mr. Freadhoff has served as chairman of the board of directors of Netgateway
since its inception in March 1998. He also served as chief executive officer of
Netgateway from March 1998 through October 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 served as the
executive director of Career Planning Center, a community based organization
serving disadvantaged 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
Mr. Camblin has served as Chief Executive Officer of Netgateway since
October 1999. He has been a director of the Company since December 15, 1999.
Mr. Camblin served as chief information officer of the Company from July 1999
until his appointment as chief executive officer. Prior to joining the Company,
from May 1998 until July 1999, Mr. Camblin was the global chief information
officer, executive vice president and executive committee member of CB Richard
Ellis. From January 1996 to April 1998, Mr. Camblin was the head of global
operations and technology, Investment Products Division at Citibank. From
July 1993 to December 1995, Mr. Camblin was the chief information officer and
senior vice president of Oracle Corporation. From June 1989 until July 1993,
Mr. Camblin was a senior vice president at Wells Fargo Bank, responsible for
operations and technologies for wholesale banking and also responsible for
credit card technologies. Prior to Wells Fargo, Mr. Camblin spent over five
years at Charles Schwab in several management positions. Other career
experiences included twelve years as an officer and pilot in the United States
Air Force, with jobs including chief of operations plans and chief of flight
management for the Pacific region. Mr. Camblin has a Bachelor of Science degree
in Marketing from Florida State University and a Masters degree in Systems
Management from the University of Southern California. Past recognitions have
included "Visionary of the Year", awarded by Sun Microsystems in 1992.
6
<PAGE>
DONALD M. CORLISS, JR.
Mr. Corliss has served as the President and a Director of Netgateway since
March 1998. He was appointed chief operating officer in March 2000. 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 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, and was responsible for management
of the development projects undertaken by this company. 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, and was responsible
for the structuring and negotiation of the business and projects undertaken by
this company. 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 Inglehame Farms 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,
Mr. Corliss' 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. Two of these real estate development ventures,
Westover Hills Development, Inc. and Inglehame Farms L.P., sought protection
from creditors under chapter 11 of the United States Bankruptcy Code in 1997 and
1998, respectively. Westover has since emerged from chapter 11 and has resumed
operations. Prior to 1993, Mr. Corliss was engaged in private law practice.
Mr. Corliss earned a Masters of Law degree 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.
R. SCOTT BEEBE
Mr. Beebe has served as a director since June 1998. From April 1987 through
June 1998, Mr. Beebe served as the managing partner of Steps, Inc., an
investment and consulting firm specializing in technology growth companies.
Mr. Beebe was a registered representative in the securities industry from 1982
through 1998. Mr. Beebe received a Bachelor of Arts degree in English from the
University of California at Berkeley in 1973.
JOHN DILLON
Mr. Dillon was appointed to the board of directors on December 15, 1999.
Mr. Dillon was named president and chief executive officer of Salesforce.com in
September 1999. Before joining Salesforce.com, Mr. Dillon was interim president
and chief executive officer for Perfecto Technologies, a start-up company
delivering solutions for ensuring Internet application security. Prior to
joining Perfecto, he served as president and chief executive officer for
Hyperion, the global company formed through the merger of Arbor Software and
Hyperion Software. Mr. Dillon also spent five years with Arbor Software as vice
president of sales and then as president and chief executive officer. Earlier in
his career, Mr. Dillon was employed at Oracle Corporation and Grid Systems in
various sales management capacities and at Electronic Data Systems Corporation
as a systems engineer. A graduate of the United States Naval Academy at
Annapolis, Mr. Dillon received a Bachelor of Science degree in engineering and a
Masters of Business Administration degree from Golden Gate University. He served
five years of active duty in the United States Navy nuclear submarine service
and retired with the rank of commander from the Naval Reserve.
7
<PAGE>
JOSEPH ROEBUCK
Mr. Roebuck was appointed to the board of directors on April 7, 2000.
Mr. Roebuck has served as vice president of strategic sales of Sun Microsystems
Computer Systems Division since 1990. Prior to 1990, Mr. Roebuck held the
position of vice president for U.S. and intercontinental sales for Asia, Latin
America and Canada at Sun Microsystems. Mr. Roebuck joined Sun Microsystems as
the vice president of sales in 1983. Prior to 1983, he served as director of
vertical marketing for Apple Computer. Mr. Roebuck previously served as a
lieutenant junior grade in the United States Navy. Mr. Roebuck received his
Bachelor of Arts degree from Cornell University and completed the advanced
management program at Harvard Business School.
COMPENSATION OF DIRECTORS
On December 15, 1999, the board of directors approved cash compensation for
non-employee directors in the amount of $15,000 annually, payable in four
quarterly installments. At that time, the non-employee directors of Netgateway
were Messrs. Beebe and Dillon, William Brock and Ronald Spire. In addition, at
that time, as part of their compensation package for serving as directors,
Messrs. Beebe, Dillon and Spire were each granted options to purchase 20,000
shares of common stock under the 1999 Stock Option Plan for Non-Executives. The
options vest quarterly over a two-year period beginning on January 1, 2000. At
the time of his appointment to the board of directors in July 1999, Mr. Brock
was granted options to purchase 150,000 shares of common stock pursuant to our
1999 Stock Option Plan for Non-Executives. Mr. Brock's options vest as follows:
50,000 at July 20, 1999 and the remainder in equal quarterly increments for two
(2) years. At the time of his appointment to the board of directors in
April 2000, Mr. Roebuck was granted options to purchase 180,000 shares of common
stock under the 1999 Stock Option Plan for Non-Executives. Mr. Roebuck's options
vest quarterly over a three year period from the date of grant. In April 2000,
Mr. Dillon was granted options to purchase an additional 180,000 shares of
common stock under the 1999 Stock Option Plan for Non-Executives. Mr. Dillon's
options vest quarterly over a three-year period. In April 2000, Mr. Beebe was
granted options to purchase an additional 60,000 shares of common stock under
the 1999 Stock Option Plan for Non-Executives. Mr. Beebe's options vest
quarterly over a one-year period.
Messrs. Freadhoff, Camblin and Corliss are employees of Netgateway and are
not compensated for their services as directors.
All directors are reimbursed for reasonable expenses incurred in connection
with attending meetings of the board of directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Netgateway's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of Netgateway's equity securities, to file
with the Securities and Exchange Commission initial reports of beneficial
ownership and reports of changes in beneficial ownership of common stock of
Netgateway. The rules promulgated by the Commission under Section 16(a) of the
Exchange Act require those persons to furnish us with copies of all reports
filed with the Commission under Section 16(a).
We were not a reporting company under the Exchange Act during our fiscal
year 1999. Accordingly, our directors, executive officers and beneficial owners
of more than 10% of the common stock were not required to file with the
Commission any reports required to be filed under Section 16(a) of the Exchange
Act.
8
<PAGE>
BOARD OF DIRECTORS AND BOARD COMMITTEES
During fiscal year 1999, the board of directors held one (1) regularly
scheduled meeting and acted by unanimous written consent on twenty-six
(26) occasions. For the period from July 1, 1999 through March 31, 2000, the
board of directors held eight (8) regularly scheduled meetings and acted by
unanimous written consent on fourteen (14) occasions. In addition to attending
meetings, directors also discharge their responsibilities by review of company
reports to directors, visits to company facilities, correspondence and telephone
conferences with the company's executive officers and others regarding matters
of interest and concern to Netgateway.
The board of directors has standing audit, finance and compensation
committees. All committees report their activities, actions and recommendations
to the board of directors.
In September 1998, the board of directors created a compensation committee,
which is currently comprised of Messrs. Beebe, Brock and Dillon. The
compensation committee has (i) full power and authority to interpret and
supervise the administration of our stock option plans and (ii) 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. Beebe and Brock. As of the date of these proxy
materials, the audit committee has one vacancy. The audit committee is
responsible for, among other things, reviewing the results of the audit
engagement with our 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.
In January 2000, the board of directors created a finance committee, which
is currently comprised of Messrs. Freadhoff, Corliss, Beebe, Camblin, Brock and
Dillon. The finance committee is responsible for reviewing Netgateway's annual
operating budgets, strategic business objectives and financial projections.
Additionally, the finance committee is responsible for reviewing all proposed
financing transactions, merger and acquisition transactions and advising the
board of directors on all matters related to our financial condition.
COMPENSATION COMMITTEE INTERLOCKS
We did not have a compensation committee during the period from our
inception on March 2, 1998 through September 30, 1998. Messrs. Beebe, Brock and
Dillon currently are members of the compensation committee. No interlocking
relationships exist between our compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past. There are no interlocking
relationships between the Company and other entities that might affect the
determination of the compensation of our directors and executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee believes that the compensation levels of our
executive officers, who provide leadership and strategic direction for
Netgateway, should consist of (i) base salaries that are commensurate with
executives of other comparable e-commerce companies and (ii) cash bonus
opportunities based on achievement of objectives set by the compensation
committee with respect to the chairman, the chief executive officer and the
president/chief operating officer and by the chief executive officer and the
president/chief operating officer in consultation with the compensation
committee with respect to the other executive officers of Netgateway. The
compensation committee also believes that it is important to provide
Netgateway's executive officers with significant stock-based incentive
compensation that increases in value in direct correlation with improvement in
the
9
<PAGE>
performance of Netgateway's common stock, thereby aligning management's interest
with that of our stockholders.
The compensation committee considers the following factors (ranked in order
of importance) when determining compensation of our executive officers:
(i) Netgateway's performance measured by attainment of specific strategic
objectives, stock price performance and operating results; (ii) the individual
performance of each executive officer, including the achievement by the
executive (or the executive's functional group) of identified goals; and
(iii) historical cash and equity compensation levels.
CASH COMPENSATION
The salaries of some of our executive officers were initially set by their
respective employment agreements, which provide that Netgateway may increase
their base salary throughout the term or any renewal term of their respective
agreements. Each agreement is consistent with our compensation policy described
above.
As stated above, the compensation of executive officers is also based in
part upon individual performance and comparative industry compensation levels.
Early in each year, a performance plan is established. Each plan sets forth
overall goals to be achieved by Netgateway, as well as specific performance
goals to be achieved by each of our executive officers according to his or her
duties and responsibilities, for the relevant year. For fiscal years 1999 and
2000, these overall compensation goals include: (i) the meeting of targets
relating to the gross revenues arising from e-commerce services; (ii) the
meeting of targets relating to new customers in each of our targeted markets and
to additional sales to existing customers in each of those markets; (iii) the
acquisition of technologies and businesses consistent with our business and
product goals and the successful integration of the acquired businesses and
technologies; (iv) the enhancement of strategic relationships; (v) the meeting
of cash flow, expense and other budgetary targets; and (vi) the achievement of
appreciation in our stock price.
The base salaries of each of the executive officers identified below were
either set by, or determined by reference to, that executive's employment
agreement (see "Executive Compensation--Employment Agreements"). Bonus
compensation for each executive was determined based on the executive's
achievement of overall corporate goals and individual and functional area goals
during fiscal year 1999 and for the period through March 31, 2000. Other
executive officers received salary increases and bonuses based on their
achievement of overall corporate goals and individual and functional area goals
during fiscal year 1999 and for the period through March 31, 2000. On average,
the compensation committee believes the cash compensation for our executive
officers is comparable to industry salary and bonus levels.
EQUITY COMPENSATION
The full board of directors and, upon formation of the compensation
committee, the non-employee members of the compensation committee, administer
and authorize all grants and awards made under the 1998 Stock Compensation
Program, the 1998 Stock Option Plan for Senior Executives and the 1999 Stock
Option Plan for Non-Executives. In some instances, awards are authorized for new
employees as incentives to join Netgateway. In determining whether and in what
amount to grant stock options or other equity compensation to executive officers
in fiscal year 1999, the board of directors or the non-employee members of the
compensation committee considered the amount and date of vesting of currently
outstanding incentive equity compensation granted previously to each executive
officer. The compensation committee believes that continued grants of equity
compensation to key executives are necessary to retain and motivate
exceptionally talented executives who are necessary to achieve our long-term
goals, especially at a time of significant growth and competition in our
industry.
During fiscal year 1999 and for the period through March 31, 2000, the board
of directors or non-employee members of the compensation committee approved
grants of equity compensation to all
10
<PAGE>
the executive officers named in the Summary Compensation Table below and
approved grants of equity compensation to certain of the other executive
officers, consistent with the board of directors' and compensation committee's
overarching policy of granting equity compensation to key executives and to our
employees in general.
EXECUTIVE COMPENSATION
The following table and discussion summarizes the compensation for (a) the
individuals who served as chief executive officer during fiscal year 1999 and
the four most highly compensated executive officers, other than the chief
executive officer, who were serving as executive officers at the end of fiscal
year 1999 (Messrs. Freadhoff, Corliss, Bassett-Parkins, Gatarz and Ms. Hahn
Ngo), and (b) individuals who served as the chief executive officer and each of
the five other most highly compensated executive officers through March 31, 2000
of fiscal year 2000 (Messrs. Freadhoff, Camblin, Corliss, Bassett-Parkins,
Gatarz and Simon Spencer and Ms. Ngo) for the years indicated during which each
person was employed by us.
11
<PAGE>
SUMMARY COMPENSATION TABLE FISCAL YEAR 1999
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------------- ------------------------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR ($) ($) ($) (1) ($) (#) COMPENSATION
- ------------------ -------- -------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Keith D. Freadhoff ...... 1999 100,625 57,500 -- $3,200,000(2) (2) --
Chief Executive Officer
and Director
Roy W. Camblin III(3).... 1999 -- -- -- -- -- --
Donald M. Corliss, 1999 96,250 50,000 -- $3,200,000(4) (4) --
Jr. ...................
President and Director
David Bassett-Parkins ... 1999 87,500 50,000 -- $3,200,000(5) (5) --
Chief Financial Officer
and Chief Operating
Officer
Simon Spencer(6)......... 1999 -- -- -- -- -- --
Hahn Ngo ................ 1999 75,000 25,000 -- -- 150,000(7) --
Executive Vice
President of Operations
and Secretary
Craig S. Gatarz ......... 1999 30,000 7,500 -- -- 161,812(8) --
General Counsel
</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 stock.
(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) Mr. Camblin commenced his employment with us in August 1999.
(4) 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 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.
(5) 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.
(6) Mr. Spencer commenced his employment with us in September 1999.
(7) 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
12
<PAGE>
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. As a result of this amendment, options exercisable
for an aggregate of 75,000 shares of common stock were declared vested as of
June 30, 1999.
(8) At June 30, 1999, Mr. Gatarz held options 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 vest over a
period of two years and not as a result of the satisfaction of performance
milestones. As a result of this amendment, options exercisable for an
aggregate of 21,703 shares of common stock were declared vested as of
June 30, 1999.
SUMMARY COMPENSATION FISCAL YEAR 2000
(THROUGH MARCH 31, 2000)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------------------------- ------------------------------------
OTHER RESTRICTED
ANNUAL STOCK STOCK ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ------------------ -------- -------- -------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Keith D. Freadhoff ...... 2000 150,982 57,500 -- -- -- --
Chairman of the Board
of Directors
Roy W. Camblin III ...... 2000 120,299 28,750 -- $3,375,000(1) 200,000(2) --
Chief Executive Officer
Chief Information
Officer and Director
Donald M. Corliss, 2000 144,473 55,000 -- -- -- --
Jr. ...................
President, Chief
Operating Officer and
Director
David 2000 131,288 50,000 -- -- -- --
Bassett-Parkins(3).....
Hahn Ngo(4).............. 2000 101,265 37,500 -- -- 150,000(5) --
Simon Spencer ........... 2000 93,785 52,500 -- -- 150,000(6) --
Chief Technical Officer
and Chief Information
Officer
Craig S. Gatarz ......... 2000 98,484 37,500 -- -- 161,812(7) --
General Counsel and
Secretary
</TABLE>
- --------------------------
(1) In November 1995, Mr. Camblin received a restricted stock award of
500,000 shares of common stock.
(2) At March 31, 2000, Mr. Camblin held options exercisable for an aggregate of
200,000 shares of common stock. Of these options, options exercisable for
116,667 shares of common stock were declared vested as of March 31, 2000.
(3) Mr. Bassett-Parkins no longer serves as the chief financial officer or chief
operating officer. He remains a director. On April 14, 2000, we received
notice from Mr. Bassett-Parkins of his intent to terminate his employment
agreement for "good reason," as that term is defined in his employment
agreement, effective as of June 7, 2000. Mr. Bassett-Parkins has alleged
that, under his employment agreement, he is entitled to a lump sum severance
payment as a result of terminating his employment for "good reason."
13
<PAGE>
(4) Ms. Ngo no longer serves as the executive vice president--operations or
secretary. On April 14, 2000, we received notice from Ms. Ngo of her intent
to terminate her employment agreement with us for "good reason," as that
term is defined in her employment agreement, effective as of June 7, 2000.
She has alleged that, under her employment agreement, she is entitled to a
lump sum severance payment as a result of terminating her employment for
"good reason."
(5) At March 31, 2000, Ms. Ngo held options exercisable for an aggregate of
150,000 shares of common stock. Of these options, options exercisable for
150,000 shares of common stock were declared vested as of March 31, 2000.
(6) At March 31, 2000, Mr. Spencer held options exercisable for an aggregate of
150,000 shares of common stock. Of these options, options exercisable for
12,500 shares of common stock were declared vested as of March 31, 2000.
(7) At March 31, 2000, Mr. Gatarz held options exercisable for an aggregate of
161,821 shares of common stock. Of these options, options exercisable for
77,616 shares of common stock were declared vested as of March 31, 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning options to
purchase common stock that were granted in fiscal year 1999 to the named
executive officers. Netgateway did not grant SARs in fiscal year 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE CLOSING OPTION TERM ($)
OPTIONS EMPLOYEES IN OR BASE SALE ---------------------------------
NAME GRANTED FISCAL YEAR PRICE ($) EXPIRATION DATE PRICE($) 5% 10% 0%(7)
- ---- ---------- ------------ --------- ----------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith D. Freadhoff...... 276,000(1) 7.7 2.50 December 15, 2008 4.87 1,499,430 2,796,301 1,262,560
400,000(1) 11.1 4.87 December 15, 2008 4.87 1,225,087 3,104,610 --
Roy W. Camblin III(2)... -- -- -- -- -- -- -- --
Donald M. Corliss, 264,000(3) 7.3 2.50 December 15, 2008 4.87 1,434,237 2,674,723 1,207,666
Jr.................... 400,000(3) 11.1 4.87 December 15, 2008 4.87 1,225,087 3,104,610 --
David Bassett-Parkins... 240,000(4) 6.7 2.50 December 15, 2008 4.87 1,303,852 2,431,566 1,097,878
400,000(4) 11.1 4.87 December 15, 2008 4.87 1,225,087 3,104,610 --
Hahn Ngo................ 200,000(5) 5.6 2.50 December 15, 2008 4.87 1,086,543 2,026,305 914,898
266,667(5) 7.4 4.87 December 15, 2008 4.87 816,726 2,069,743 --
Simon Spencer(6)........ -- -- -- -- -- -- -- --
Craig S. Gatarz......... 150,000 4.2 6.50 April 4, 2009 12.88 2,172,024 4,036,110 1,815,921
11,812 0.3 5.17 April 4, 2009 12.88 186,750 333,540 144,147
</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 for an aggregate of 316,667 shares of
common stock granted to Ms. Ngo were terminated.
(6) Mr. Spencer commenced his employment with us in September 1999.
(7) Calculated using the Black Scholes pricing model with the following
assumptions: (a) volatility--100%, (b) risk free rate--5%, (c) dividend
yield--0% and (d) time of exercise--10 years.
14
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 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 the named 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)....................... -- -- -- --
Simon Spencer(6)............................... -- -- -- --
Hahn Ngo(7).................................... 75,000 75,000 478,500 478,500
Craig Gatarz(8)................................ 21,703 140,109 103,089 665,118
</TABLE>
- ------------------------
(1) Based on the closing sale price of our common stock on the OTC bulletin
board at fiscal year end of $11.25 per share less the exercise price payable
for the 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) Mr. Spencer commenced his employment with us in September 1999.
15
<PAGE>
(7) 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 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.
(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 options 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, options exercisable for an aggregate of 21,703 shares of common
stock were declared vested as of June 30, 1999. Accordingly, at June 30,
1999, Mr. Gatarz held exercisable in-the-money stock options for an
aggregate of 21,703 shares of common stock with a value of $103,089 and held
unexercisable in-the-money stock options for an aggregate of 140,109 shares
of common stock with a value of $665,118.
16
<PAGE>
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
The following table summarizes the key provisions of the employment
agreements of the named executive officers.
<TABLE>
<CAPTION>
CONTRACT CONTRACT
COMMENCEMENT TERMINATION BONUS
NAME AND POSITION DATE DATE PER ANNUM SALARY ARRANGEMENTS
- ----------------- ------------------ ------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff ..... January 1, 1999 December 31, 2001 $185,000 through $57,500 payable in June
Chairman June 30, 1999; $201,250 1999; Eligible for bonus
thereafter of up to $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 ..... August 13, 1999 July 25, 2000 $175,000 As determined by the
Chief Executive board of directors.
Officer
Donald M. Corliss, January 1, 1999 December 31, 2001 $185,000 through $55,000 payable in July
Jr. .................. June 30, 1999; $192,500 1999; Eligible for bonus
President, Chief thereafter for each of the three
Operating Officer and month periods ended
Director September 30, 1999 and
December 31, 1999 upon
satisfaction of earnings
milestones; Otherwise as
determined by the board
of directors.
Simon Spencer .......... March 1, 2000 February 28, 2002 $200,000 As determined by the
Chief Information board of directors.
Officer
David January 1, 1999 December 31, 2001 $175,000 $25,000 payable in
Bassett-Parkins(1) . December 1999; Eligible
for bonus for each of
the three month periods
ending September 30,
1999 and December 30,
1999 upon satisfaction
of earning milestones;
Otherwise as determined
by the board of
directors.
Hanh Ngo(1) ............ January 1, 1999 December 31, 2001 $135,000 $25,000 payable on
December 1999; Eligible
for bonus each of the
three month periods
ending September 30,
1999 and December 30,
1999 upon satisfaction
of earning milestones;
Otherwise as determined
by the board of
directors.
Craig S. Gatarz ........ April 5, 1999 April 5, 2002 $120,000 through As determined by the
General Counsel and June 30, 1999; $150,000 board of directors.
Corporate Secretary through March 31, 2000;
$175,000 thereafter
</TABLE>
- ------------------------------
(1) On April 14, 2000, we received notice from Mr. Bassett-Parkins and Ms. Ngo
of their intent to terminate their employment agreements for "good reason,"
as that term is defined in their employment agreements, effective as of
June 7, 2000. They have alleged that, under their employment agreements,
they are each entitled to a lump-sum payment as a result of their
terminating their employment for "good reason."
17
<PAGE>
In the event of a change in control of Netgateway, all options previously
granted to these individuals that remain unvested will 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, as defined in each employee's employment agreement, Netgateway is
required to pay to the individual, in the case of Messrs. Freadhoff, Corliss 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 Messrs. Camblin,
Gatarz and Spencer and Ms. Ngo a lump sum severance payment equal to two times
the sum of (1) his or her then current annual salary and (2) his or her highest
bonus in the three year period preceding the change in control. If this
severance payment results in the imposition of an excise tax on the relevant
individual, Netgateway is required to gross up this individual for the 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 Netgateway
without cause or by the relevant individual with good reason, then Netgateway is
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 period. The
relevant individual may terminate his or her employment at any time upon at
least thirty (30) days written notice to us. Upon the termination of the
agreement, the relevant individual is subject to non-competition, non-disclosure
and non-solicitation provisions for one year.
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. The acquisition was not
consummated and was subsequently abandoned. This loan was due and payable on
December 31, 1999 and accrued 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 reduced the value of this loan in our financial
statements to zero effective December 31, 1998. Keith D. Freadhoff, 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 491,783 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 Netgateway's formation on March 2, 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 changed
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, Inc. ("Steps") granting Steps
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. Netgateway, 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,
Netgateway agreed to assume the minimum royalty payments required under its
master license, totaling $1,600,000. In consideration of the sublicense from
Steps, we
18
<PAGE>
- 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, Netgateway
terminated the licenses and, in December 1998, entered into a settlement
agreement under which we have been released from all further obligations 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, chief operating officer 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
491,783 shares of our common stock, was an officer, director and significant
stockholder of ProSoft until early 1998.
During the period from March 2, 1998 through June 30, 1998, Mr. Freadhoff
loaned Netgateway $132,429, $100,000 of which was converted into a capital
contribution in June 1998. The remaining balance of $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 2, 1998 through June 30, 1998, Netgateway
stockholders Michael Khaled, Donald Danks, and Lynn Turnbow paid on Netgateway's
behalf to ProSoft under 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 Netgateway $100,000. The loan was
non-interest bearing. This loan was repaid with a portion of the proceeds of our
Summer 1999 private placement. In June 1999, Netgateway 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 Vanderhoof, and 100,000 shares of common
stock to Michael Khaled, a significant stockholder. The warrants were issued to
reimburse Messrs. Freadhoff, Beebe, Danks and Vanderhoof for voluntarily
transferring to Mr. Khaled an equal number shares of common stock 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 Vanderhoof,
contributed to a 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. The master 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, chief operating officer and one of our directors, and the beneficiary
of one of which is David Bassett-Parkins, formerly 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, formerly 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 individual trusts of which
Messrs. Corliss and Bassett-Parkins and Ms. Ngo are beneficiaries are, by their
terms, permitted to deliver the shares of
19
<PAGE>
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. In January 2000, a
new individual trust was formed, the trustee of which is Mr. Freadhoff and the
beneficiary of which is Roy W. Camblin III, our chief executive officer and a
director. At that time, the master trust contracted to sell to the Camblin trust
100,000 shares of common stock in exchange for a promissory note in the amount
of $425,000. Messrs. Freadhoff and Beebe intend to contribute 50,000 shares of
common stock each to the master trust in respect of this sale to the Camblin
trust. Mr. Camblin has delivered to the Camblin trust a promissory note in the
amount of $425,000. The terms of Mr. Camblin's trust are substantially similar
to the description of the other individual trusts set forth above.
20
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OWNERSHIP
The following table sets forth,
- 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, as of March 31,
2000,
- each of our directors, director nominee(s) and executive officers named in
the Summary Compensation Table, as of March 31, 2000 and
- all of our current directors and executive officers as a group,
and the number of shares of common stock beneficially owned by each person and
the group and the percentage of the outstanding shares owned by each person and
the group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are exercisable on, or become exercisable within 60 days following, March 31,
2000 are deemed outstanding. These option or warrant shares, however, are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes to this table, the
persons named in the table have sole voting and sole investment power with
respect to the shares set forth opposite such stockholder's name.
Except as otherwise noted below, the address of each of the persons in the
table is c/o Netgateway, Inc., 300 Oceangate, 5th Floor, Long Beach, California
90802.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
WARRANTS OR OPTION TOTAL CLASS
GRANTS UNDER OUR BENEFICIAL BENEFICIALLY
NAME OF BENEFICIAL OWNER SHARES OWNED STOCK OPTION PLANS OWNERSHIP OWNED
- ------------------------ ------------ ------------------ ---------- ------------
<S> <C> <C> <C> <C>
Keith D. Freadhoff....................... 1,750,215 0 1,750,215(1) 10.0%
Roy W. Camblin III....................... 500,000 150,000 650,000 3.7%
Donald M. Corliss, Jr.................... 552,000 0 552,000 3.2%
David Bassett-Parkins.................... 840,667 0 840,667 4.8%
Simon Spencer............................ 0 12,500 12,500 *
Craig S. Gatarz.......................... 0 93,071 93,071 *
Hanh Ngo................................. 105,000 150,000 255,000 1.4%
John Dillon.............................. 0 2,500 2,500 *
Scott Beebe.............................. 773,651 2,500 776,151 4.4%
William Brock............................ 0 125,000 125,000 *
Ronald Spire............................. 85,302 2,500 87,802 *
Joseph Roebuck........................... 0 0 0 0%
All current directors and executive
officers as a group (12 persons)(2).... 4,416,533 406,404 4,822,537 27.0%
</TABLE>
- ------------------------
* Less than 1 percent.
(1) Includes 456,666 shares of common stock currently held by the individual
trusts, of which Mr. Freadhoff is trustee and over which Mr. Freadhoff has
beneficial ownership.
(2) Our current directors and executive officers include: Keith D. Freadhoff,
Roy W. Camblin III, Donald M. Corliss, Jr., David Bassett-Parkins, Simon
Spencer, Jill Glashow Padwa, Craig S. Gatarz, Jon C. Frojen, John Dillon,
Scott Beebe, William Brock and Joseph Roebuck.
21
<PAGE>
Netgateway's common stock was not registered under Section 12 of the
Securities Exchange Act of 1934, as amended, at the end of our last fiscal year,
and as a result, no performance graph information is available.
AMENDMENT TO CERTIFICATE OF INCORPORATION
INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
(ITEM III)
At the meeting, we will ask the stockholders to approve an amendment to our
certificate of incorporation increasing the number of shares of common stock
Netgateway is authorized to issue from 40,000,000 to 250,000,000.
The purpose of this proposal is to enable Netgateway to effect potential
future stock splits and stock dividends that will continue to make Netgateway
stock affordable for a broader base of stockholders, and to issue common stock
for other proper corporate purposes that may be identified in the future. The
proposed amendment would increase the number of authorized shares of common
stock from 40,000,000 shares to 250,000,000 shares. The board of directors
adopted the proposed amendment to the certificate of incorporation at its
March 7, 2000 meeting, subject to stockholder approval, and declared the
proposal to be advisable. Accordingly, stockholders are asked to vote on the
following resolution:
RESOLVED, THAT THE CORPORATION'S CERTIFICATE OF INCORPORATION BE AMENDED
TO INCREASE THE TOTAL NUMBER OF SHARES OF COMMON STOCK THAT THE COMPANY
IS AUTHORIZED TO ISSUE TO TWO HUNDRED FIFTY MILLION (250,000,000) SHARES
OF COMMON STOCK, TO BE EFFECTED BY DELETING SECTION A OF ARTICLE IV IN
ITS ENTIRETY AND INSERTING THE FOLLOWING IN LIEU THEREOF:
FOURTH. A. The aggregate number of shares which the Corporation shall
have authority to issue is 255,000,000, par value $.001 per share, of
which 250,000,000 shares shall be designated Common Shares and 5,000,000
shares shall be designated Preferred Shares.
Authorized but unissued shares of common stock may be used by Netgateway for
any purpose permitted under Delaware law, including to raise capital; to provide
equity incentives to employees, officers and directors; and to enter strategic
transactions that the board of directors believes provide the potential for
growth and profit, although Netgateway has no present intent to use the
additional authorized shares of common stock for such purposes. Authorized but
unissued shares of common stock may also be used to oppose a hostile takeover
attempt or to delay or prevent a change in control of Netgateway, although we
have no present intention to issue shares for such purpose. The proposed
amendment has been prompted by business and financial considerations, and we are
not aware of any threat of takeover or change in control. While approval of the
proposed amendment to the our certificate of incorporation will increase the
number of authorized shares, each of the newly authorized shares of common stock
will have the same rights and privileges as currently authorized common stock.
Adoption of the proposed amendment will not affect the rights of the holders of
currently outstanding common stock nor will it change the par value of the
common stock.
The number of shares of common stock issued and outstanding as of the record
date for the meeting, April 28, 2000, was 17,497,727. Netgateway holds no shares
as treasury stock. Our authorized capital currently consists of 40,000,000
shares of common stock, $.001 par value per share, and 5,000,000 shares of
preferred stock, $.001 par value per share. Since the proposed amendment would
increase the number of authorized shares of common stock to 250,000,000, the
total number of authorized shares would thereby be increased to 255,000,000. The
proposed amendment to increase the authorized number of shares of common stock
does not change the number of shares of preferred stock that we are authorized
to issue. There are no shares of preferred stock currently outstanding.
22
<PAGE>
If the proposed amendment is adopted, it will become effective upon filing
of a certificate of amendment to our certificate of incorporation with the
Secretary of State of the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
NETGATEWAY IS AUTHORIZED TO ISSUE.
1999 STOCK OPTION PLAN FOR NON-EXECUTIVES
(ITEM IV)
At the meeting, we will ask the stockholders to approve the adoption of the
Netgateway's 1999 Stock Option Plan for Non-Executives.
Our 1999 Stock Option Plan for Non-Executives was adopted and approved by
the board of directors in July 1999. A total of 2,000,000 shares of common stock
have been reserved for issuance under the 1999 Stock Option Plan for
Non-Executives, all of which are subject to stockholder approval at the special
meeting. As of March 31, 2000, options for 1,426,942 shares were outstanding
thereunder at a weighted average exercise price of $9.03 per share, and 514,635
shares remain available for issuance under the 1999 Stock Option Plan for
Non-Executives.
The 1999 Stock Option Plan for Non-Executives provides for the grant of
nonstatutory stock options to employees, directors and consultants.
As of March 31, 2000, approximately 136 persons were eligible to receive
grants under the 1999 Stock Option Plan for Non-Executives. The 1999 Stock
Option Plan for Non-Executives is administered by a plan administrator appointed
by the compensation committee of the board of directors. Subject to the
restrictions of the 1999 Stock Option Plan for Non-Executives, the plan
administrator, in consultation with the compensation committee, determines who
is granted options, the terms of options granted, including exercise price, the
number of shares subject to the option and the option's exercisability. The
actions of the plan administrator are ratified by the compensation committee on
a quarterly basis.
The exercise price of options granted under the 1999 Stock Option Plan for
Non-Executives is determined on the date of grant, and is generally fixed at
100% of the fair market value per share at the time of grant. The exercise price
of any option granted to an optionee who owns stock possessing more than 10% of
the voting power of our outstanding capital stock must equal at least 110% of
the fair market value of the common stock on the date of grant. Payment of the
exercise price may be made by (1) delivery of cash or a check, bank draft or
money order, in United States dollars, payable to the order of Netgateway,
(ii) through the delivery of shares of common stock already owned by the
optionee with any aggregate fair market value on the date of exercise equal to
the total exercise price, (iii) by having shares with an aggregate fair market
value on the date of exercise equal to the total exercise price (A) withheld by
Netgateway or (B) sold by a broker-dealer under circumstances meeting the
requirements of 12 C.F.R. Section 220 or any successor provision, (iv) by any
combination of the above methods of payment or (v) or by any other means
approval by the board of directors.
Options granted to employees under the 1999 Stock Option Plan for
Non-Executives generally become exercisable in increments, based on the
optionee's continued employment, over a period of up to three years. The form of
option agreement generally provides that options granted under the 1999 Stock
Option Plan for Non-Executives expire ten (10) years from the date of grant.
Stock options granted under the 1999 Stock Option Plan for Non-Executives are
not transferable by the optionee, other than by will or the laws of descent and
distribution, and are exercisable during the optionee's lifetime only by the
optionee. Generally, in the event of a merger with or into another corporation
or a sale of all or substantially all of Netgateway's assets, all outstanding
options under the 1999 Stock Option Plan for Non-Executives accelerate and
become fully exercisable upon consummation of the merger or sale of assets.
23
<PAGE>
The board may amend the 1999 Stock Option Plan for Non-Executives at any
time or from time to time or may terminate the 1999 Stock Option Plan for
Non-Executives without the approval of the stockholders, provided that
stockholder approval is required for any amendment to the 1999 Stock Option Plan
for Non-Executives requiring stockholder approval under applicable law as in
effect at the time. However, no action by the board of directors or stockholders
may alter or impair any option previously granted under the 1999 Stock Option
Plan for Non-Executives. The board may accelerate the exercisability of any
option or waive any condition or restriction pertaining to such option at any
time.
TAX CONSEQUENCES OF OPTIONS
The 1999 Stock Option Plan for Non-Executives provides for the grant of
nonstatutory stock options. Generally, an optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory option. Upon its
exercise, however, the optionee will generally recognize taxable ordinary income
measured as the excess of the then fair market value of the shares acquired over
the exercise price of the option. Any taxable income recognized in connection
with an option exercise by an optionee who is also an employee of Netgateway
will be subject to tax withholding by Netgateway. We will be entitled to a tax
deduction in the same amount as the ordinary income recognized by the optionee
with respect to shares acquired upon exercise of a nonstatutory option. Upon
resale of the shares by the optionee, any difference between the sales price
received and the fair market value for the shares on the date of exercise of the
option will be treated as long-term or short-term capital gain or loss,
depending on the optionee's holding period for the shares.
The foregoing is only a summary, based on the current federal income tax
code and treasury regulations, of the federal income tax consequences to the
optionee and Netgateway with respect to the grant and exercise of options under
the 1999 Stock Option Plan for Non-Executives. It does not purport to be
complete, and does not discuss the tax consequences of the optionee's death or
the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE
COMPANY'S 1999 STOCK OPTION PLAN FOR NON-EXECUTIVES.
INCREASE IN THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE 1999 STOCK
OPTION PLAN FOR NON-EXECUTIVES
(ITEM V)
At the meeting we will ask the stockholders to approve an increase in the
number of shares of common stock reserved for issuance under the 1999 Stock
Option Plan for Non-Executives.
On March 7, 2000, the board of directors adopted an amendment to the 1999
Stock Options Plan for Non-Executives to increase the number of shares reserved
for issuance thereunder by 3,000,000 shares, from 2,000,000 shares to 5,000,000
shares. Without giving effect to the share amendment, only 514,635 shares remain
available, as of March 31, 2000, for future grant as nonstatutory stock options
under the 1999 Stock Option Plan for Non-Executives. This will not allow
Netgateway to meet its anticipated needs with respect to the issuance of such
additional options to employees, directors and consultants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO ADOPT THE
INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK RESERVED FOR ISSUANCE UNDER THE
COMPANY'S 1999 STOCK OPTION PLAN FOR NON-EXECUTIVES.
24
<PAGE>
SELECTION OF INDEPENDENT AUDITORS
(ITEM VI)
At the meeting we will ask the stockholders to ratify the appointment of the
firm of KPMG LLP as independent auditors to audit the consolidated financial
statements of Netgateway and our subsidiaries for the fiscal years ending
June 30, 1999 and June 30, 2000. Although such ratification is not required by
law, the board of directors believes that stockholders should be given this
opportunity to express their views on the subject. While not binding on the
board of directors, the failure of the stockholders to ratify the appointment of
KPMG LLP as our independent auditors would be considered by the board of
directors in determining whether to continue the engagement of KPMG LLP. It is
expected that representatives of KPMG LLP will attend the meeting, have the
opportunity to make a statement if they so desire, and be available to answer
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY THE
APPOINTMENT OF KPMG LLP AS NETGATEWAY'S INDEPENDENT AUDITORS FOR FISCAL YEARS
1999 AND 2000.
OTHER BUSINESS
It is not anticipated that any other matters will be brought before the
meeting for action. If any such other matters shall properly come before the
meeting, however, it is intended that the persons authorized under the proxies
may, in the absence of instructions to the contrary, vote or act on these
matters in accordance with their best judgment.
ANNUAL REPORT
Our annual report to stockholders, including financial statements for the
year ended June 30, 1999, is being distributed to all stockholders together with
this proxy statement, in satisfaction of the requirements of the Securities and
Exchange Commission. Additional copies of such report are available upon
request. To obtain additional copies of the annual report, please contact our
Investor Relations Department at (562) 308-0010.
EXPENSE OF SOLICITATION OF PROXIES
The cost of soliciting proxies will be paid by Netgateway. In addition to
solicitation by mail, solicitations may also be made by telephone, telecopy or
in person. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to their principals,
and we will reimburse them for their expenses in so doing. Officers and other
employees of Netgateway, as yet undesignated, may also request the return of
proxies by telephone, telecopy or in person.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present
proper proposals for inclusion in Netgateway's proxy statement and for
consideration at the next annual meeting by submitting their proposals in a
timely manner. Any stockholder who wishes to present a proposal for the
inclusion in the proxy statement for action at the next annual meeting must
comply with Netgateway's certificate of incorporation and bylaws and the rules
and regulations of the Commission then in effect. To be considered for inclusion
in next year's proxy statement, a proposal must be mailed to Netgateway at its
offices at 300 Oceangate, 5th Floor, Long Beach, California 90802, Attention:
Corporate Secretary and must be received by no later than February 28, 2001.
IMPORTANT
TO ASSURE YOUR REPRESENTATION AND A QUORUM FOR THE TRANSACTION OF BUSINESS
AT THE SPECIAL MEETING, THE COMPANY URGES YOU TO PLEASE COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD PROMPTLY.
25
<PAGE>
NETGATEWAY, INC.
MEETING OF STOCKHOLDERS, MAY 24, 2000
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR USE AT THE
MEETING OF STOCKHOLDERS OF NETGATEWAY, INC. The undersigned hereby appoints
Keith D. Freadhoff, Roy W. Camblin III and Donald M. Corliss, Jr., and each of
them, as Proxies, each with the power to appoint their respective substitutes,
and hereby authorizes them to represent and to vote, as designated below and in
accordance with their judgment upon any other matter properly presented, all the
shares of common stock (the "Common Stock"), of Netgateway, Inc. ("Netgateway")
held of record by the undersigned at the close of business on April 28, 2000, at
the Meeting of Stockholders to be held on May 24, 2000 or any adjournment or
postponement of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
BYLAWS TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS, FOR THE ELECTION OF THE
NOMINEES NAMED HEREIN AS DIRECTORS OF NETGATEWAY, FOR APPROVAL OF THE AMENDMENT
TO NETGATEWAY'S CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK TO 250,000,000, FOR APPROVAL OF THE NETGATEWAY, INC. 1999
STOCK OPTION PLAN FOR NON-EXECUTIVES, FOR APPROVAL OF AN INCREASE IN THE NUMBER
OF SHARES RESERVED FOR ISSUANCE UNDER THE 1999 STOCK OPTION PLAN FOR
NON-EXECUTIVES AND FOR RATIFICATION OF KPMG LLP AS NETGATEWAY'S INDEPENDENT
AUDITORS FOR FISCAL YEARS 1999 AND 2000.
Should any nominee decline or be unable to accept such nomination to serve as a
director, an event that Netgateway does not currently anticipate, the persons
named in the enclosed proxy reserve the right, in their discretion, to vote for
a lesser number or for substitute nominees designated by the board of directors.
PLEASE MARK, SIGN, DATE AND RETURN THIS FORM PROMPTLY IN THE ENCLOSED ENVELOPE.
----------------------------------
SEE REVERSE SIDE
----------------------------------
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Item 1, FOR the election of the director nominees named herein, FOR
Item 3, FOR Item 4, FOR Item 5 and FOR Item 6.
<TABLE>
<S> <C> <C>
1. Approval of amendment to Netgateway's bylaws to adopt a
classified board of directors.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of directors to serve until the 2000 annual / / FOR / / WITHHELD
meeting of stockholders indicated.
Nominees: To serve until the 2000 annual meeting: Keith D. Freadhoff, Donald M. Corliss,
Jr. and R. Scott Beebe.
Election of directors to serve until the 2001 annual / / FOR / / WITHHELD
meeting of stockholders indicated.
Nominees: To serve until the 2001 annual meeting: Roy Camblin III, John Dillon and Joseph
Roebuck.
Except, for vote withheld from the following nominee(s):
</TABLE>
Please indicate by a check mark whether you plan to attend the Special Meeting
of Stockholders. / /
3. Approval of amendment to Netgateway's certificate of incorporation
increasing the number of authorized shares of common stock to 250,000,000.
/ / FOR / / AGAINST / / ABSTAIN
4. Approval of 1999 Stock Option Plan for Non-Executives
/ / FOR / / AGAINST / / ABSTAIN
5. Approval of an increase in the number of shares reserved for issuance under
the 1999 Stock Option Plan for Non-Executives
/ / FOR / / AGAINST / / ABSTAIN
6. The proposal to ratify the appointment of KPMG LLP as Netgateway's auditors
for fiscal years 1999 and 2000.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE SIGN YOUR NAME BELOW. WHEN SHARES ARE
HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL
TITLE OR CAPACITY. IF A CORPORATION, PLEASE
SIGN IN CORPORATE NAME BY AN AUTHORIZED
OFFICER AND GIVE TITLE. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AN
AUTHORIZED PERSON.
_____________________________________________
PRINT NAME OF STOCKHOLDER
_____________________________________________
SIGNATURE(S) DATE
