As filed with the Securities and Exchange Commission on January 21, 2000
Registration No.: 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-8
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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NETGATEWAY, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of organization)
87-0591719
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(I.R.S. Employer Identification No.)
300 Oceangate, 5TH Floor
Long Beach, California 90802
Phone: 582-308-0010
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(Address of Principal Executive Offices) (Zip Code)
NETGATEWAY, INC.
1998 STOCK COMPENSATION PROGRAM; 1998 STOCK OPTION PLAN FOR
SENIOR EXECUTIVES; 1999 STOCK OPTION PLAN FOR
NON-EXECUTIVES; EXECUTIVE OFFICER COMMON STOCK GRANTS;
DIRECTOR WARRANTS AND CONSULTANT WARRANTS
- --------------------------------------------------------------------------------
(Full title of the plan)
Craig S. Gatarz, Esq.
General Counsel
300 Oceangate, 5TH Floor
Long Beach, California 90802
Phone: 582-308-0010
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(Name, address and telephone number of agent for service)
Copy to:
C. Thomas Hopkins, Esq.
Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, California 93101
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<TABLE>
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CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Maximum
Amount of Proposed Maximum Aggregate Amount
Title of Securities Shares to be Offering Price per Offering Price of Registration
to be Registered Registered(1) Share(s) Fee
- ----------------------- ----------------- ---------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Common Stock, par 5,000,000(2) $10.437 $52,185,000(9) $13,777
value $.001 per
share
Common Stock, par 2,000,000(3) $10.437 $20,874,000(9) $ 5,511
value $.001 per
share
Common Stock, par 1,000,000(4) $10.437 $10,437,000(9) $ 2,755
value $.001 per
share
Common Stock, par 1,200,000(5) $7.00 $8,400,000(10) $2,218
value $.001 per
share
Common Stock, par 500,000(6) $6.75 $3,375,000(10) $891
value $.001 per
share
Common Stock, par 174,502(7) $7.00 $1,221,514(10) $323
value $.001 per
share
Common Stock, par 2,500(8) $ 6.00 $ 15,000(10) $ 4
value $.001 per
share
Total: 9,877,002 $25,479
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</TABLE>
(1) In addition, pursuant to Rule 416 under the Securities Act of 1933, this
Registration Statement also covers an indeterminate number of shares as may
be required by reason of any stock dividend, recapitalization, stock split,
reorganization, merger, consolidation, combination or exchange of shares or
other similar change affecting the stock.
(2) Includes 5,000,000 shares of common stock reserved under the Registrant's
1998 Stock Option Plan for Senior Executives.
(3) Includes 2,000,000 shares of common stock reserved under the Registrant's
1999 Stock Option Plan for Non-Executives.
(4) Includes 1,000,000 shares of common stock reserved under the Registrant's
1998 Stock Compensation Program.
(5) Includes 400,000 shares of common stock issued to each of Keith D.
Freadhoff, Donald M. Corliss, Jr. and David Bassett-Parkins.
(6) Includes 500,000 shares of common stock issued to Roy W. Camblin III.
(7) Includes 43,549 shares of common stock issued to Keith D. Freadhoff;
includes 43,651 shares of common stock issued to R. Scott Beebe; and
includes 87,302 shares of common stock issued to Ronald Spire.
(8) Includes a warrant to purchase up to 2,500 shares of common stock granted
to April Reitman.
(9) Estimated pursuant to Rule 457(h) solely for the purpose of calculating the
amount of the registration fee on the basis of the average of the high and
low reported sale prices of a share of common stock of Netgateway on
January 20, 2000 as reported by The Nasdaq Stock Market, Inc.
(10) Estimated based upon the exercise price of the common stock and warrant
when issued or granted.
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EXPLANATORY NOTE
The Prospectus filed as part of this Registration Statement has been
prepared in accordance with the requirements of Form S-3 and may be used for
reofferings and resales of registered shares of common stock which have been
issued upon the exercise of options which have been granted under the
Netgateway, Inc.'s 1998 Stock Compensation Program; 1998 Stock Option Plan For
Senior Executives; 1999 Stock Option Plan For Non-Executives and individual
common stock grants or warrants issued to directors, officers, employees and
consultants of Netgateway.
<PAGE>
PROSPECTUS
NETGATEWAY, INC.
9,877,002 SHARES OF COMMON STOCK
issued pursuant to the
NETGATEWAY, INC.
1998 STOCK COMPENSATION PROGRAM; 1998 STOCK OPTION PLAN FOR
SENIOR EXECUTIVES; 1999 STOCK OPTION PLAN FOR
NON-EXECUTIVES; EXECUTIVE OFFICER COMMON STOCK GRANTS;
DIRECTORS WARRANTS AND CONSULTANT WARRANTS
This prospectus relates to the reoffer and resale of a total of 9,877,002
shares of our common stock, $.001 par value, which has been acquired under our
Netgateway, Inc. 1998 Stock Compensation Program; 1998 Stock Option Plan For
Senior Executives; 1999 Stock Option Plan For Non-Executives; Executive Officer
Common Stock Grants and individual common stock or warrants granted to certain
of our directors, officers, employees or consultants. The shares of common stock
acquired under the plans or individually may be offered from time to time by the
selling stockholders named or described in this prospectus. The shares may be
offered through brokers and dealers to be selected by the selling stockholders,
and through public or private transactions, on or off the Nasdaq National Market
System, pursuant to this registration statement or pursuant to Rule 144, in
negotiated transactions, at fixed prices, at market prices prevailing at the
time of sale, at prices related to prevailing market prices or at negotiated
prices. We will receive none of the proceeds from the sale of the shares by the
selling stockholders. We have agreed to bear certain expenses, including the
fees and costs of preparing, filing and keeping effective this registration
statement (other than selling commissions and fees and expenses of counsel and
other advisors to the selling stockholders) in connection with the registration
of the shares.
Through November 17, 1999, our common stock traded on the OTC Bulletin
Board under the symbol "NGWY." Commencing on November 18, 1999, our common stock
has been quoted on the Nasdaq National Market under the symbol "NGWY."
--------------
Investing in our common stock involves risks. See "Risk Factors" beginning
on page 3.
--------------
The selling stockholders and any broker-dealers, agents or underwriters
that participate with the selling stockholders in the distribution of the shares
may be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act of 1933, and any commissions received by them and any profit on
the resale of the shares purchased by them may be deemed underwriting
commissions or discounts under the Securities Act.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January 21, 2000.
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TABLE OF CONTENTS
Page
Available Information....................................... 2
Information Incorporated by Reference....................... 2
Risk Factors................................................ 3
Use of Proceeds............................................. 16
The Selling Stockholders.................................... 16
Plan of Distribution........................................ 18
Legal Matters............................................... 18
Experts..................................................... 18
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934. In accordance with the Exchange Act, we file all required reports,
proxy statements and other information with the Securities and Exchange
Commission. Reports, proxy statements and other information filed by us may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; and
copies of such material may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549, at prescribed rates. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, "http://www.sec.gov".
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by us with the Commission are incorporated by
reference in this prospectus:
(1) The Company's Prospectus filed pursuant to Rule 424(b)(4) on
November 19, 1999 (File No. 333-79751); and
(2) The description of the common stock contained in the Company's
Registration Statement on Form 8-A filed November 4, 1999 (File
No. 000-27941).
The above-listed documents are on file with the Commission and are
incorporated in this prospectus by reference and made a part hereof. All
documents we subsequently file pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act, prior to the termination of the offering of the common stock
under this prospectus shall be deemed to be incorporated by reference into this
registration statement. Any statement contained in this prospectus, any
prospectus supplement or in a document incorporated by reference shall be deemed
modified or superseded to the extent that a statement contained in any
prospectus supplement or in any other subsequently filed document which also is
or is deemed to be incorporated by reference herein or therein, modifies or
supersedes that statement. Any statement so modified or superseded shall not be
deemed to constitute a part hereof, except as so modified or superseded. We will
cause to be furnished without charge to each person to whom this prospectus is
delivered, upon the written or oral request of such person, a complete copy of
the above referenced documents or other documents filed under the Exchange Act
(except for exhibits, unless they are specifically incorporated by reference
into those documents). Requests should be addressed to: Netgateway, Inc., 300
Oceangate, 5th Floor, Long Beach, California 90802, phone number (582) 308-0010,
Attention: Craig S. Gatarz, Esq.
2
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RISK FACTORS
This prospectus contains forward-looking statements and information
relating to Netgateway. We intend to identify forward-looking statements in this
prospectus by using words such as "believes," "intends," "expects," "may,"
"will," "should," "plan," "projected," "contemplates," "anticipates,"
"estimates," "predicts," "potential," "continue," or similar terminology. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties, and assumptions. Actual future results may differ significantly
from the results discussed in the forward-looking statements. Some, but not all,
of the factors that may cause such a difference include those which we discuss
in this Risk Factors section of this prospectus.
An investment in our common stock is highly speculative, involves a high
degree of risk and should be made only by investors who can afford a complete
loss. You should carefully consider the following risk factors, together with
the other information in this prospectus, before you decide to buy our common
stock.
RISKS SPECIFIC TO NETGATEWAY
We have had a deficit in stockholder's equity; We anticipate future losses
We have incurred substantial losses since our inception and we anticipate
continuing to incur substantial losses for the foreseeable future. As of June
30, 1999 and September 30, 1999, we had a working capital (deficit) of
$(1,545,420) and $(3,042,769), respectively, and shareholders' equity (deficit)
of $545,291 and $(867,106) at June 30, 1999 and September 30, 1999,
respectively. Additional information about these financial results are contained
in our financial statements and the related notes. We generated revenues of
$143,426 for the year ended June 30, 1999 and $212,733 during the three months
ended September 30, 1999. For the year ended June 30, 1999 and the three months
ended September 30, 1999, we incurred net losses of $(10,487,016) and
$(3,832,055), respectively. We may never achieve profitability. In addition,
during the year ended June 30, 1999 and the three months ended September 30,
1999, we recorded negative cash flows from operations of $(4,552,912) and
$(2,156,738), respectively. To succeed, we must leverage our existing
relationships and develop new relationships to substantially increase our
revenue derived from more comprehensive electronic commerce services. We have
expended and will continue to expend significant resources to build our internal
systems, to grow our infrastructure, to add additional participating companies
and employees, and to establish access to the ICC platform for participating
companies, directly and as resellers. These development expenses must be
incurred well in advance of the recognition of revenue. Under generally accepted
accounting principles during our fiscal year ended June 30, 1999 and the three
months ended September 30, 1999, we recognized revenue only upon completion of a
customer transaction through the ICC. This required the realization of expenses
in advance of associated related revenue. Our performance will depend in large
part upon our ability to estimate accurately these resource requirements and the
revenues generated by customers engaging in the transactions through the ICC. To
date, the volume of our transactions has been limited, and, accordingly, the
revenue recognized has been minimal. We intend to continue to invest heavily in
acquisitions, infrastructure, development, and marketing. As result, we may not
be able to achieve or sustain profitability.
Our auditors have qualified their report on our financial statements with
respect to our ability to continue as a going concern
The report of KPMG LLP, our independent auditors, with respect to our
financial statements and the related notes, indicate that, at the date of their
report, we were a development stage company, had generated minimal revenues
since inception, and were continuing to incur losses. Accordingly, our auditors
qualified their report to indicate that these matters raise substantial doubt,
at that date, about our ability to continue as a going concern. Our financial
statements do not include any adjustments that might result from this
uncertainty.
3
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Because we have been in business for a short period of time, there is limited
information upon which investors can evaluate our business
We began our operations in March 1998 and are currently a development
stage company. Consequently, we have a very limited operating history upon which
investors may base an evaluation of our business and determine our prospects for
achieving our intended business objectives. Although we have recently entered
into agreements with electronic commerce resellers providing us with access to
more than eight million potential clients, we are currently providing electronic
commerce transaction processing services to only approximately 1,600 clients. We
are prone to all of the risks inherent to the establishment of any new business
venture, including unforeseen changes in our business plan. For example, in June
1998, we changed our business plan to the development of technology to enable
businesses and other organizations to engage in electronic commerce, whereas our
prior efforts focused on the licensing and distribution of software support
materials for the governmental and educational markets. Investors should
consider the likelihood of our future success to be highly speculative in light
of our limited operating history, as well as the limited resources, problems,
expenses, risks, and complications frequently encountered by similarly situated
companies in the early stages of development, particularly companies in new and
rapidly evolving markets, such as electronic commerce. To address these risks,
we must, among other things,
o maintain and increase our client base,
o implement and successfully execute our business and marketing
strategy,
o continue to develop and upgrade our technology and transaction
processing systems,
o continually update and improve our service offerings and
features,
o provide superior customer service,
o respond to industry and competitive developments, and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do
so, our business prospects, financial condition, and results of operations would
be adversely affected.
Fluctuations in our operating results may affect our stock price
As a result of our limited operating history and the emerging nature of the
markets in which we compete, we believe that our operating results may fluctuate
substantially/significantly. Because of this, quarter-to-quarter comparisons of
our results of operations may not be meaningful. If, in some future quarter,
whether as a result of such a fluctuation or otherwise, our results of
operations fall below the expectations of securities analysts and investors, the
trading price of our common stock would likely be negatively affected. You
should not rely on our results of any interim period as an indication of our
future performance. Additionally, our quarterly results of operations may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside our control. Factors that may cause our quarterly results
to fluctuate include, among others:
o our ability to retain existing clients and electronic commerce
resellers, to attract new clients and electronic commerce
resellers at a steady rate, and to maintain client satisfaction;
o our ability to motivate our existing clients, and the ability of
certain of our clients to motivate their customers, to begin to
conduct certain portions of their business on the Internet;
o the ability of our resellers to resell our StoresOnline services;
o the announcement or introduction of new services and products by
us and our competitors;
4
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o price competition or higher prices in the industry;
o pricing of hardware and software required for the transaction of
electronic commerce;
o the level of use of the Internet and online services and the rate
of market acceptance of the Internet and other online services
for transacting commerce;
o our ability to upgrade and develop our systems and infrastructure
in a timely and effective manner;
o our ability to attract, train, and retain skilled management,
strategic, technical, and creative professionals;
o technical difficulties, system downtime, or Internet brownouts;
o the amount and timing of operating costs and capital expenditures
relating to the expansion of our business, operations, and
infrastructure;
o unanticipated technical, legal, and regulatory difficulties with
respect to use of the Internet; and
o general economic conditions and economic conditions specific to
Internet technology usage and electronic commerce.
Our marketing strategy has not been tested and may not result in success
We have conducted some of our marketing efforts directly and have relied
substantially upon the marketing efforts of the electronic commerce resellers
with which we have contracts or strategic relationships. All of our marketing
efforts, including our marketing through these resellers, have been largely
untested in the marketplace, and may not result in sales of our products and
services. To penetrate our target market, we will have to exert significant
efforts to create awareness of, and demand for, our products and services. With
respect to our marketing efforts conducted directly, we intend to continue to do
the following:
o advertise on the Internet;
o advertise on television in selected markets;
o direct mail;
o conduct targeted e-mail campaigns;
o advertise in technology, financial, and business publications
having wide readership; and
o expand our sales staff.
With respect to our marketing efforts conducted through resellers, we have
commenced and intend to continue to do the following:
o create a group within our sales staff trained to assist resellers
in marketing our products and services to their customers,
members, employees, and relationships;
o create branded promotional brochures and other marketing
materials to inform resellers and their constituencies as to our
products and services, and
5
<PAGE>
o advertise in trade publications in strategic industries.
Our failure to further develop our marketing capabilities and successfully
market our products and services could adversely affect us.
If we are unable to upgrade our infrastructure, we may be unable to process an
increased volume of transactions
A key element of our strategy is to provide on a cost-effective basis the
means by which our clients can generate a high volume of electronic commerce
transactions through the use of our hardware and software infrastructure. If the
volume of transactions through our infrastructure substantially increases, we
will have to expand and further upgrade our technology, transaction processing
systems, and hardware and software infrastructure to accommodate these increases
or our systems may suffer from
o unanticipated system disruptions,
o slower response times,
o degradation in levels of customer service,
o impaired quality and speed of transaction processing, and
o delays in reporting accurate financial information.
We may be unable to effectively upgrade and expand our hardware and
software infrastructure or to integrate smoothly any newly developed or
purchased software with our existing systems.
We rely on internally developed systems which are inefficient, which may put us
at a competitive disadvantage
We use an internally developed system for a portion of our transaction
processing software, as well as the software required to interconnect our
clients' systems with our own. As we developed these systems primarily to
support the rapid growth of transaction submission volume and customer service
and less on traditional accounting, control, and reporting, these systems are
inefficient and require a significant amount of manual effort to prepare
information for financial and accounting reporting. This type of manual effort
is time-consuming and costly and may place us at a competitive disadvantage when
compared to competitors with more efficient systems. We intend to upgrade and
expand our transaction processing systems and to integrate newly-developed and
purchased software with our existing systems in order to improve the efficiency
of our reporting methods and support increased transaction volume. However, we
are unable to predict whether these upgrades will improve our competitive
position.
If we change our revenue recognition principles, our results of operations for
prior periods may change
We currently recognize revenues using the completed contract method. We
intend to consider using the percentage of completion method to recognize
revenues when we meet the criteria necessary to use that method. Under the
completed contract method, revenue is recognized upon completion or substantial
completion of the contract. Under the percentage of completion method, revenue
is recognized on a pro rata basis as work progresses on the contract, and
percentage of completion is determined on the basis of cost incurred to total
estimated costs. Under the percentage of completion method, in the period in
which one determines that a loss will result from a performance of a contract,
the entire amount of the estimated loss is recognized. In the event that we make
this change, we will be required to restate comparative prior periods. We cannot
guarantee that any amendments to our financial statements as a result of this
change will not be material.
6
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Our management owns a substantial portion of our common stock, investors may
have difficulty obtaining the necessary stockholder vote for corporate
actions contrary to the wishes of management
At January 20, 2000, our current directors and executive officers together
beneficially own approximately 4,677,302 shares or approximately 27% of the
outstanding shares of our common stock. As a result of their stock ownership:
o our current officers and directors have the ability to
substantially influence the outcome of all matters on which
stockholders are entitled to vote, including the elections of our
directors and the approval of significant corporate transactions;
and
o investors may have difficulty obtaining the necessary stockholder
vote required for corporate actions contrary to the wishes of
management.
Our management team is relatively new; Many of our employees have recently
joined us and must be integrated into our operations
From our inception on March 4, 1998 to June 30, 1998, during the year ended
June 30, 1999, during the three months ended September 30, 1999 and during the
three months ended December 31, 1999, we expanded from seven to 16 employees,
from 16 to 68 employees, from 68 to 101 employees and from 101 to 125 employees,
respectively. Some of our officers have no prior senior management experience in
public companies and have only recently joined us. Our new employees include a
number of key managerial, technical, financial, marketing, and operations
personnel who have not yet been fully integrated into our operations, and we
expect to add additional key personnel in the near future. Our failure to fully
integrate our new employees into our operations would adversely affect us.
We have limited human resources; We need to attract and retain highly skilled
personnel; We may be unable to effectively manage our growth with our
limited resources
We expect that the expansion of our business will place a significant
strain on our limited managerial, operational, and financial resources. We will
be required to expand our operational and financial systems significantly and to
expand, train, and manage our work force in order to manage the expansion of our
operations. Our future success will depend in large part on our ability to
attract, train, and retain additional highly skilled executive level management,
creative, technical, and sales personnel. Competition is intense for these types
of personnel from other technology companies and more established organizations,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than we have. We may not be successful in
attracting and retaining qualified personnel on a timely basis, on competitive
terms, or at all. If we are not successful in attracting and retaining these
personnel, we will be adversely affected.
We depend upon our senior management and their loss or unavailability could put
us at a competitive disadvantage
Our success depends largely on the skills of certain key management and
technical personnel. The loss or unavailability of any of these individuals for
any significant period of time could adversely affect us. We have obtained, own,
and are the sole beneficiary of, key-person life insurance in the amount of
$1,000,000 on the life of Keith D. Freadhoff, our Chairman of the Board of
Directors. We may not be able to replace this key individual in the event his
services become unavailable.
As our chairman of the board of directors has pledged his stock, we may
experience a change of control
Keith D. Freadhoff, our Chairman of the Board of Directors, has pledged
825,000 shares of our common stock held by him as security for his personal
financial obligations, which, at the date of this prospectus, are approximately
$1,100,000. These financial obligations are due on demand. If Mr. Freadhoff
defaults on these obligations, Mr. Freadhoff may lose ownership of these shares,
including the right to vote these shares, which could result in a change of
control of Netgateway and could adversely affect us.
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We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others
Our ability to compete effectively will depend on our ability to maintain
the proprietary nature of our services and technologies, including our
proprietary software and the proprietary software of others with which we have
entered into software licensing agreements. Although we have one patent
application pending, we hold no patents and rely on a combination of trade
secrets and copyright laws, nondisclosure, and other contractual agreements and
technical measures to protect our rights in our technological know-how and
proprietary services. We depend upon confidentiality agreements with our
officers, directors, employees, consultants, and subcontractors to maintain the
proprietary nature of our technology. These measures may not afford us
sufficient or complete protection, and others may independently develop know-how
and services similar to ours, otherwise avoid our confidentiality agreements, or
produce patents and copyrights that would adversely affect us. We believe that
our services are not subject to any infringement actions based upon the patents
or copyrights of any third parties; however, our know-how and technology may in
the future be found to infringe upon the rights of others. Others may assert
infringement claims against us, and if we should be found to infringe upon their
patents or copyrights, or otherwise impermissibly utilize their intellectual
property, our ability to continue to use our technology could be materially
restricted or prohibited. If this event occurs, we may be required to obtain
licenses from the holders of this intellectual property, enter into royalty
agreements, or redesign our products and services so as not to utilize this
intellectual property, each of which may prove to be uneconomical or otherwise
impossible. Licenses or royalty agreements required in order for us to use this
technology may not be available on terms acceptable to us, or at all. These
claims could result in litigation, which could adversely affect us.
We may be held liable for online content provided by third parties
We may face potential liability for defamation, negligence, copyright,
patent, or trademark infringement and other claims based on the nature and
content of the materials that appear on storefronts and Web pages that utilize
our services. Claims of this type have been brought, and sometimes successfully
pursued, against online services. Although we carry general liability insurance,
our insurance may not cover all claims or may not be adequate to indemnify us
for any liability that may be imposed. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of our insurance
coverage, could adversely affect us.
We cannot predict our future capital needs and we may not be able to secure
additional financing
Because we cannot predict our future capital needs or be assured of
securing additional financing when it may be needed, our financial resources may
not be sufficient to satisfy our capital requirements for the next 18 months. In
addition, we may need to raise significant additional funds in order to support
our growth, develop new or enhanced services and products, respond to
competitive pressures, acquire or invest in complementary or competitive
businesses or technologies, or take advantage of unanticipated opportunities. If
our financial resources are insufficient and, in any case, after this 18-month
period, we will require additional financing in order to meet our plans for
expansion. We cannot be sure that this additional financing, if needed, will be
available on acceptable terms or at all. Furthermore, any additional debt
financing, if available, may involve restrictive covenants, which may limit our
operating flexibility with respect to business matters. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
our existing stockholders will be reduced, our stockholders may experience
additional dilution in net book value per share, and those equity securities may
have rights, preferences, or privileges senior to those of our existing
stockholders. If adequate funds are not available on acceptable terms, we may be
unable to develop or enhance our services and products, take advantage of future
opportunities, repay debt obligations as they become due, or respond to
competitive pressures, any of which would have a material adverse effect on our
business, prospects, financial condition, and results of operations.
Because we will not pay cash dividends, investors may have to sell their shares
in order to realize their investment
We have not paid any cash dividends on our common stock and do not intend
to pay cash dividends in the foreseeable future. We intend to retain future
earnings, if any, for reinvestment in the development and expansion of our
business. Any credit agreements into which we may enter with institutional
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lenders may restrict our ability to pay dividends. Whether we pay cash dividends
in the future will be at the discretion of our board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, and any other factors that the board of directors decides are
relevant. As a result, investors may have to sell their shares of common stock
to realize their investment.
Because we depend upon a single site for our computer and communications
systems, we are more vulnerable to the effects of natural disasters,
computer viruses, and similar disruptions
Our ability to successfully process transactions and provide
high-quality customer service largely depends on the efficient and uninterrupted
operation of our computer and communications hardware and software systems. Our
proprietary and licensed software resides solely on our servers, all of which,
as well as all of our communications hardware, are located in a monitored server
facility in Irvine, California. Our systems and operations are in a secured
facility with hospital-grade electrical power, redundant telecommunications
connections to the Internet backbone, uninterruptible power supplies, and
generator back-up power facilities. In addition, we maintain redundant systems
for backup and disaster recovery. Despite these safeguards, we remain vulnerable
to damage or interruption from fire, flood, power loss, telecommunications
failure, break-ins, earthquake, and similar events. In addition, we do not, and
may not in the future, carry sufficient business interruption insurance to
compensate us for losses that may occur. Despite our implementation of Internet
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins, and similar disruptions, which could lead to
interruptions, delays, loss of data, or the inability to process client
transactions. The occurrence of any of these events could adversely affect us.
Users may confuse other companies' domain names with our own
We have registered with the InterNIC registration service the Internet
domain names:
<TABLE>
<S> <C> <C>
netgateway.net Clevelandstores.com cablenetmall.com
netgateway.org, Clevelande-mall.com citdmall.com
storesonlinemall.com Clevelandemall.com northshorestores.com
federalbuyersmall.com Cleveland-emall.com otimall.com
solint.net E-Cart.com showcasestores.com
frontiervisionmall.com cablecommerce.net cconnections.com
opentrade.net mikesofamerica.com openemail.net
communicationsgroup.com golfmate.com dgenesis.com
afisteaks.com eknowledge.net citdmall.com
northshorestores.com quickgrill.com getitnashville.com
wirelessonemall.com storesonline.com shoptwincities.com
</TABLE>
We have registered with InterNIC.com the Internet domain names:
o millenniumemall.com; and
o millenniumemall.net.
However, there are other substantially similar domain names which are
registered by companies which may compete with us, which may cause potential
users and advertisers to confuse our domain name with other similar domain
names. In addition, new domains may be added in the future, allowing
combinations and similar domain names that may be confusingly similar to our
own. If that confusion occurs,
o we may inadvertently lose business to a competitor,
o we may have to adjust our advertising rates and service fees
accordingly, or
o some users of our services may have negative experiences
with other companies on their Web sites that those users
erroneously associate with us.
9
<PAGE>
Some provisions of our certificate of incorporation and by-laws may deter
takeover attempts, which may limit the opportunity of our stockholders to
sell their shares at a premium to the then market price
Some of the provisions of our certificate of incorporation and our by-laws
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders by providing them with the opportunity
to sell their shares at a premium to the then market price. Our by-laws contain
provisions that regulate the introduction of business at annual meetings of our
stockholders by other than the board of directors. These provisions may have the
effect of rendering more difficult, delaying, discouraging, preventing, or
rendering more costly an acquisition of Netgateway or a change in control of
Netgateway. In addition, our certificate of incorporation authorizes the board
of directors to issue up to 4,000,000 shares of preferred stock, which may be
issued in one or more series, the terms of which may be determined at the time
of issuance by the board of directors, without further action by stockholders,
and may include voting rights, including the right to vote as a series on
particular matters, preferences as to dividends and liquidation, conversion, and
redemption rights, and sinking fund provisions. No shares of preferred stock are
currently outstanding, and we have no present plans for the issuance of any
preferred stock. However, the issuance of any preferred stock could adversely
affect the rights of holders of our common stock, and, therefore, could reduce
its value. In addition, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with, or sell our assets
to, a third party. The ability of the board of directors to issue preferred
stock could have the effect of rendering more difficult, delaying, discouraging,
preventing, or rendering more costly an acquisition of us or a change in our
control, thereby preserving our control by the current stockholders.
RISKS SPECIFIC TO OUR INDUSTRY
Internet security poses risks to our entire business
The processing of electronic commerce transactions by means of our hardware
and software infrastructure involves the transmission and analysis of
confidential and proprietary information of the consumer, the merchant, or both,
as well as our own confidential and proprietary information. The compromise of
our security or misappropriation of proprietary information could have a
material adverse effect on our business, prospects, financial condition, and
results of operations. We rely on encryption and authentication technology
licensed from other companies to provide the security and authentication
necessary to effect secure Internet transmission of confidential information,
such as credit information and proprietary consumer information. Advances in
computer capabilities, new discoveries in the field of cryptography, or other
events or developments may result in a compromise or breach of the technology
used by us to protect client transaction data. Anyone who is able to circumvent
our security measures could misappropriate proprietary information or cause
interruptions in our operations, as well as the operations of the merchant. We
may be required to expend significant capital and other resources to protect
against security breaches or to minimize problems caused by security breaches.
Concerns over the security of the Internet and other electronic transactions and
the privacy of consumers and merchants may also inhibit the growth of the
Internet and other online services generally, especially as a means of
conducting commercial transactions. To the extent that our activities or the
activities of others involve the storage and transmission of proprietary
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our security measures may not
prevent security breaches. Our failure to prevent these security breaches may
adversely affect us.
We will only be able to execute our business plan if electronic commerce
continues to grow
Our future revenues and any future profits are substantially dependent upon
the widespread acceptance and use of the Internet and other online services as
an effective medium of commerce by merchants and consumers. If use of the
Internet and other online services does not continue to grow or grows more
slowly than we expect, if the infrastructure for the Internet and other online
services does not effectively support the growth that may occur, or if the
Internet and other online services do not become a viable commercial
marketplace, we could be adversely affected. Rapid growth in the use of, and
interest in, the Internet, the Web, and online services is a recent phenomenon,
and may not continue on a lasting basis. In addition, customers may not adopt,
and continue to use, the Internet and other online services as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty, and few
services and products have generated profits. For us to be successful, consumers
10
<PAGE>
of both retail and business to business services must be willing to accept and
use novel and cost efficient ways of conducting business and exchanging
information.
In addition, the public in general may not accept the Internet and other
online services as a viable commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements. To the extent that the Internet and other online retail and
business to business services continue to experience significant growth in the
number of users, their frequency of use, or in their bandwidth requirements, the
infrastructure for the Internet and online services may be unable to support the
demands placed upon them. In addition, the Internet or other online services
could lose their viability due to delays in the development or adoption of new
standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Significant issues
concerning the commercial use of the Internet and online services technologies,
including security, reliability, cost, ease of use, and quality of service,
remain unresolved and may inhibit the growth of Internet business solutions that
utilize these technologies. Changes in, or insufficient availability of,
telecommunications services to support the Internet or other online services
also could result in slower response times and adversely affect usage of the
Internet and other online services generally and our product and services in
particular.
We may not be able to adapt as the Internet, electronic commerce, the
electronic commerce services industry, and customers demands continue to
evolve
Our failure to respond in a timely manner to changing market conditions or
client requirements would have an adverse effect on us. The Internet, the
electronic commerce, and the electronic commerce services industry are
characterized by:
o rapid technological change;
o changes in user and customer requirements and preferences;
o frequent new product and service introductions embodying new
technologies; and
o the emergence of new industry standards and practices that
could render proprietary technology and hardware and
software infrastructure obsolete.
Our success will depend, in part, on our ability to:
o enhance and improve the responsiveness and functionality of
our online transaction processing services;
o license or develop technologies useful in our business on a
timely basis;
o enhance our existing services;
o develop new services and technology that address the
increasingly sophisticated and varied needs of our
prospective or current customers; and
o respond to technological advances and emerging industry
standards and practices on a cost-effective and timely
basis.
We may not be able to compete effectively in our industry
While the market for electronic commerce services is relatively new, it is
already highly competitive and characterized by an increasing number of entrants
that have introduced or developed products and services similar to those offered
by us. We believe that competition will intensify and increase in the future.
Our target market is rapidly evolving and is subject to continuous technological
change. As a result, our competitors may be better positioned to address these
developments or may react more favorably to these changes, which could adversely
11
<PAGE>
affect us. We compete on the basis of a number of factors, including the
attractiveness of the electronic commerce services offered, the breadth and
quality of these services, creative design and systems engineering expertise,
pricing, technological innovation, and understanding clients' strategies and
needs. A number of these factors are beyond our control. Existing or future
competitors may develop or offer electronic commerce services that provide
significant technological, creative, performance, price, or other advantages
over the services offered by us.
Our competitors can be divided into several groups:
o large systems integrators;
o Internet service providers and portals;
o large information technology consulting services providers;
o computer hardware and service vendors; and
o strategic consulting firms.
We also may compete with telecommunications companies. Although most of
these types of competitors to date have not offered a full range of Internet
professional services, many are currently offering these services or have
announced their intention to do so. These competitors at any time could elect to
focus additional resources in our target markets, which could materially
adversely affect our business, prospects, financial condition, and results of
operations. Many of our current and potential competitors have longer operating
histories, larger customer bases, longer relationships with clients, and
significantly greater financial, technical, marketing, and public relations
resources than we do. Competitors that have established relationships with large
companies, but have limited expertise in providing Internet solutions, may
nonetheless be able to successfully use their client relationships to enter our
target market or prevent our penetration into their client accounts. We believe
that our primary competitors currently include, Broadvision, Open Market,
Commerce One, Ariba, VerticalNet, Intel, Microsoft, AT&T, Intershop, MCI
Worldcom, Yahoo! Stores, ICAT, GE Information Services, IBM, and smaller
Internet services providers.
Additionally, in pursuing acquisition opportunities we may compete with
other companies with similar growth strategies, some of which may be larger and
have greater financial and other resources than we have. Competition for these
acquisition targets likely could also result in increased prices of acquisition
targets and a diminished pool of companies available for acquisition.
There are relatively low barriers to entry in our business. Although we
have one patent application pending at this time, we have no patented, and only
a limited amount of other proprietary, technology that would preclude or inhibit
competitors from entering the electronic commerce services market. Therefore, we
must rely on the skill of our personnel and the quality of our client service.
The costs to develop and provide electronic commerce services are relatively
low. Therefore, we expect that we will continually face additional competition
from new entrants into the market in the future, and we are subject to the risk
that our employees may leave us and may start competing businesses. The
emergence of these enterprises could adversely affect us.
Regulatory and legal uncertainties could harm our business
We are not currently subject to direct regulation by any government agency
other than laws or regulations applicable generally to electronic commerce. Any
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services, could adversely affect us. Due to the increasing popularity and use of
the Internet and other online services, federal, state, and local governments
may adopt laws and regulations, or amend existing laws and regulations, with
respect to the Internet or other online services covering issues such as
taxation, user privacy, pricing, content, copyrights, distribution, and
characteristics and quality of products and services. In 1998, the United States
Congress established the Advisory Committee on Electronic Commerce which is
12
<PAGE>
charged with investigating, and making recommendations to Congress regarding,
the taxation of sales by means of the Internet. Furthermore, the growth and
development of the market for electronic commerce may prompt calls for more
stringent consumer protection laws to impose additional burdens on companies
conducting business online. The adoption of any additional laws or regulations
upon the recommendation of this Advisory Committee or otherwise may decrease the
growth of the Internet or other online services, which could, in turn, decrease
the demand for our services and increase our cost of doing business, or
otherwise have a material adverse effect on us. Moreover, the relevant
governmental authorities have not resolved the applicability to the Internet and
other online services of existing laws in various jurisdictions governing issues
such as property ownership and personal privacy and it may take time to resolve
these issues definitively.
RISKS SPECIFIC TO THIS OFFERING
The market price of our securities may be volatile, and we must satisfy the
applicable requirements for our common stock to continue to trade on the
Nasdaq National Market
Our common stock is quoted on the Nasdaq National Market. From time to
time, the market price of our common stock may experience significant
volatility. Our quarterly results, failure to meet analysts expectations,
announcements by us or our competitors regarding acquisitions or dispositions,
loss of existing clients, new procedures or technology, changes in general
conditions in the economy, and general market conditions could cause the market
price of the common stock to fluctuate substantially. In addition, the stock
market has experienced significant price and volume fluctuations that have
particularly affected the trading prices of equity securities of many technology
companies. These price and volume fluctuations often have been unrelated to the
operating performance of the affected companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. This type of
litigation, regardless of the outcome, could result in substantial costs and a
diversion of management's attention and resources, which could adversely affect
us.
Under the currently effective criteria for continued listing of securities
on the Nasdaq National Market, a company must maintain $50 million in market
value, a minimum bid price of $5.00, and a public float of at least $15 million.
If we cannot maintain the standards for continued listing, our common stock
could be subject to delisting from the Nasdaq National Market. Trading, if any,
in our common stock would then be conducted in either the Nasdaq SmallCap Market
or in the over-the-counter market on the OTC Bulletin Board established for
securities that do not meet the Nasdaq SmallCap Market listing requirements or
in what are commonly referred to as the "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the price of, our shares.
Significant additional dilution if outstanding options and warrants are
exercised
As of the date of this prospectus, we have outstanding stock options to
purchase approximately 2,665,060 shares of common stock and warrants and
convertible or exchangeable securities to purchase approximately 1,651,260
million shares of common stock, some of which have exercise prices significantly
below the current price of our common stock. To the extent those options or
warrants are exercised, there will be dilution. In addition, in the event that
any future financing should be in the form of, be convertible into, or
exchangeable for, equity securities, and upon the exercise of options and
warrants, investors may experience additional dilution.
Future sales of common stock by our existing stockholders could adversely affect
our stock price
The market price of our common stock could decline as a result of sales of
a large number of shares of our common stock in the market or the perception
that these sales could occur. These sales also might make it more difficult for
us to sell equity securities in the future at a time and at a price that we deem
appropriate. On the date of this prospectus, we will have outstanding 16,947,364
shares of common stock. Of these shares, an aggregate of 5,998,799 (which number
does not include any of the securities being registered pursuant to this
registration statement) are freely tradable. With respect to the securities
being registered under this registration statement, our directors, officers and
certain employees and former employees who hold together in excess of 2,000,000
shares or options have entered or will enter into lock-up agreements by which
they have agreed that they will not sell, directly or indirectly, more than ten
percent (10%), per calendar quarter (on cumulative basis), of the shares held by
them of any of our common stock or any security or other instrument which by its
terms is
13
<PAGE>
convertible into, or exchangeable for, shares of our common stock, without our
prior written consent. This lock-up will not apply to certain senior executives
solely to the extent necessary to enable those executives to meet income tax
obligations for the 1999 tax year incurred directly as a result of the issuance
of those securities by us. We will endeavor to obtain lock-up agreements from
other employees although there can be no assurances that we will be successful
in doing so.
USE OF PROCEEDS
Netgateway will not receive any of the proceeds from the sale of the shares
offered by this prospectus. All net proceeds from the sale by selling
stockholders of common stock offered in this prospectus will go to the selling
stockholders or their pledgees, donees, transferees, or other successors in
interest.
THE SELLING STOCKHOLDERS
The shares of our common stock to which this prospectus relates are being
registered for re-offers and resales by selling stockholders who have acquired
shares pursuant to the exercise of options granted under our 1998 Stock
Compensation Program; 1998 Stock Option Plan For Senior Executives and 1999
Stock Option Plan For Non-Executives and/or individual common stock or warrants
granted to employees or consultants of Netgateway. The selling stockholders
named below may resell all, a portion or none of the relevant shares at any
time. However, a stockholder who sells shares pursuant to this prospectus must
comply with Rule 144(e) under the Securities Act, which limits the number of
shares that may be sold by any stockholder during any three month period.
The table below sets forth, with respect to each selling stockholder or
group of selling stockholders and based upon the information available to us as
of January 20, 2000: (a) the selling stockholders' relationship, if any, with us
within the past three years; (b) the number of shares of common stock
beneficially owned by those selling stockholders prior to this offering; (c) the
number of securities which may be offered pursuant to this prospectus; and (d)
the amount and percentage of our common stock that would be owned by each
selling stockholder after completion of this offering. In addition to the shares
of our common stock that are made available for resale pursuant to this
prospectus, various selling stockholders hold options to purchase additional
common stock from us. We cannot assure that any of the selling stockholders will
sell any or all of the shares of common stock to which this prospectus relates.
In the event that any selling stockholder sells all of the shares set forth
below without exercising more options for shares of our common stock or
otherwise acquiring shares of our common stock, that selling stockholder will no
longer hold shares of our common stock.
<TABLE>
Shares that may be Shares of Common
issued upon exercise Stock that may be sold
Selling Stockholder Relationship to Company of the options under this prospectus
- ------------------- ----------------------- ------------------ ---------------------
<S> <C> <C> <C>
Holders of shares of Common Senior executives of the
Stock of the Company issued Company and its
pursuant to the 1998 Stock subsidiaries and affiliates
Option Plan for Senior (including officers) 5,000,000 5,000,000
Executives
Holders of shares of Common Employees (including 2,000,000 2,000,000
Stock of the Company issued officers), consultants or
pursuant to the 1999 Stock directors of the Company
Option Plan for and its subsidiaries and
Non-Executives affiliates
Holder of shares of Common Employees, officers, 1,000,000 1,000,000
Stock of the Company issued directors and independent
pursuant to the 1998 Stock contractors of the Company
Compensation Program or its subsidiaries
</TABLE>
14
<PAGE>
<TABLE>
Shares to be Beneficially Owned
Shares Beneficially Shares of Common upon completion of offering(1)(2)
Relationship Owned prior Stock offered under ---------------------------------
Selling Stockholder to Company to the offering this prospectus Number Percent
- ------------------ ---------------- --------------------- -------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Keith D. Freadhoff Chairman of the 2,051,049 400,000 1,607,500 12%
Board of Directors
Donald M. Corliss President and Director 552,000 400,000 152,000 3.3%
David Bassett-Parkins Chief Operating Officer, 584,000 400,000 184,000 3.4%
Chief Financial Officer
and Director
Roy W. Camblin Chief Executive Officer 700,000 500,000 200,000 4.1%
and Director
Keith D. Freadhoff Chairman of the Board of 2,051,049 43,549 1,607,500 12%
Directors
R. Scott Beebe Director 797,951 43,651 754,300 4.7%
Ronald Spire Director 87,302 87,302 0 *
April Reitman Consultant 2,500(1) 2,500(1) 0 *
</TABLE>
- -----------
*Less than one percent
(1) Assumes that the warrant to acquire shares is exercisable within 60 days.
(2) Assumes that the outstanding warrant is exercised and all shares offered
hereby are sold, that no additional shares will be acquired and that no
shares other than those offered hereby will be sold.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold by the selling
stockholders from time to time, on the Nasdaq National Market System on terms to
be determined by the selling stockholders at the time of sale. The selling
stockholders may also make private sales directly or through a broker or
brokers. Alternatively, the selling stockholders may from time to time offer
shares to or through underwriters, dealers or agents, who may receive
consideration in the form of discounts and commissions. That compensation, which
may be in excess of ordinary brokerage commissions, may be paid by the selling
stockholders and/or the purchasers of the shares offered by this prospectus for
whom such underwriters, dealers or agents may act. The selling stockholders and
any dealers or agents that participate in the distribution of the shares offered
by this prospectus may be deemed to be "underwriters" as defined in the
Securities Act, and any profit on the sale of the shares offered by this
prospectus by them and any discounts, commissions or concessions received by
those dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. The aggregate proceeds to the selling
stockholders from sales of the shares offered by the selling stockholders will
be the purchase price of the common stock less any broker's commissions.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the common stock offered by this prospectus may
not simultaneously engage in market making activities with respect to the common
stock for a period of one business day prior to the commencement of that
distribution. Without limiting this, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations under
the Exchange Act, which may limit the timing of purchases and sales of our
common stock by the selling stockholders.
In addition to the shares sold under this prospectus, a selling stockholder
may, at the same time, sell any shares of common stock, including the shares to
be offered through this prospectus, owned by him or her in compliance with all
of the requirements of Rule 144 under the Securities Act, regardless of whether
those shares are covered by this prospectus.
There is no assurance that any of the selling stockholders will sell any or
all of the common stock offered by this prospectus.
15
<PAGE>
We will pay all expenses in connection with this offering other than
commissions and discounts of underwriters, dealers or agents. All selling and
other expenses incurred by a selling stockholder will be borne by that selling
stockholder.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Nida & Maloney, LLP, Santa Barbara, California.
EXPERTS
The financial statements incorporated in this prospectus by reference from
our registration statement No. 333-79751 on Form S-1 filed June 1, 1999, as
amended, have been audited by KPMG LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so included in
reliance upon the report of that firm given upon their authority as experts in
accounting and auditing.
16
<PAGE>
PART I.
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The documents containing the information specified in Items 1 and 2 of Part
I of Form S-8 will be sent or given to plan participants as specified in Rule
428(b)(1) and, in accordance with the instructions to Part I, are not filed with
the Securities and Exchange Commission as part of this Registration Statement.
I-1
<PAGE>
PART II.
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 3. Incorporation of documents by reference.
The following documents heretofore filed by the Registrant with the
Securities and Exchange Commission (the "Commission") are by this reference
incorporated in and made a part of this Registration Statement:
(1) The Registrant's Prospectus filed pursuant to Rule 424(b)(4) on
November 19, 1999 (File No. 333-79751); and
(2) The description of the Common Stock contained in the Registrant's
Registration Statement on Form 8-A filed November 4, 1999 (File
No. 000-27941).
All documents subsequently filed by the Registrant pursuant to Section
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as amended,
prior to the filing of a post-effective amendment which indicates that all
securities offered hereunder have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and the Prospectus that is part hereof from the date of
filing of such documents.
Item 4. Description of securities.
Not applicable.
Item 5. Interests of named experts and counsel.
The validity of the common stock has been passed upon for the Registrant by
Nida & Maloney, LLP, Santa Barbara, California. Nida & Maloney, LLP owns 15,000
shares of common stock of the Registrant.
Item 6. Indemnification of directors and officers.
Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware
Law") permits a corporation to provide in its certificate of incorporation that
directors of the corporation shall not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The Registrant's Certificate of Incorporation
contains such a provision.
Section 145 of the Delaware Law provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation - a "derivative action"), if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such action, and the statute requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. Under Section 145, a
corporation shall indemnify an agent of the corporation for expenses actually
and reasonably incurred if and to the extent such person was successful on the
merits in a proceeding or in defense of any claim, issue or matter therein.
The Registrant is presently subject to Section 2115 of the California
Corporations Code (the "California Code"), according to which Section 317 of the
California Code applies to the indemnification of officers and directors of the
Registrant. Under Section 317 of the California Code, permissible
indemnification by a corporation of its officers and directors is substantially
the same as permissible indemnification under Section 145 of the Delaware Law,
except that (i) permissible indemnification does not cover actions the person
reasonably believed were not opposed to the best interests of the corporation,
as opposed to those the person believed were in fact in the best interests of
the corporation, (ii) the Delaware Law permits advancement of expenses to agents
other than officers and directors only upon approval of the board of directors,
<PAGE>
(iii) in a case of stockholder approval of indemnification, the California Code
requires certain minimum votes in favor of such indemnification and excludes the
vote of the potentially indemnified person, and (iv) the California Code only
permits independent counsel to approve indemnification if an independent quorum
of directors is not obtainable, while the Delaware Law permits the directors in
any circumstance to appoint counsel to undertake such determination.
The Registrant in its Certificate of Incorporation has provided for
indemnification of its officers, directors, employees and other agents
substantially identical to that permitted under the Delaware Law. Section 145 of
the Delaware Law and Section 317 of the California Code provide that they are
not exclusive of other indemnification that may be granted by a corporation's
charter, bylaws, disinterested director vote, stockholder vote, agreement or
otherwise. The limitation of liability contained in the Registrant's Certificate
of Incorporation and the indemnification provision included in the Registrant's
Certificate of Incorporation are consistent with Delaware Law Sections 102(b)(7)
and 145. The Registrant has also entered into separate indemnification
agreements with its directors and officers that could require the Registrant,
among other things, to indemnify them against certain liabilities that may arise
by reason of their status or service as directors and officers and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, including liabilities that may arise under the
Securities Act of 1933. In addition, the Registrant has purchased directors and
officers insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to such provisions, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is therefore unenforceable.
Item 7. Exemption from registration claimed.
The offer and sale of the restricted securities to be re-offered or re-sold
through this registration statement were exempt pursuant to Rule 701 under the
Securities Act. These restricted securities were issued pursuant to certain
written compensatory benefit plans (or written compensation contracts) and upon
the exercise of stock options or warrants issued to employees (including
officers) under those plans.
Item 8. Exhibits.
See Exhibit Index on page II-5.
Item 9. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Long Beach, State of California, as of the 21st day
of January, 2000.
NETGATEWAY, INC.
By:/s/ Donald M. Corliss, Jr.
_____________________________
Donald M. Corliss, Jr.
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Keith D.
Freadhoff, Roy W. Camblin III and Donald M. Corliss, Jr. his true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full powers and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might, or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated below.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Keith D. Freadhoff Chairman of the Board of Directors January 21, 2000
- ------------------------------------
Keith D. Freadhoff
/s/ Roy W. Camblin III Chief Executive Officer and Director January 21, 2000
- ------------------------------------ (Principal Executive Officer)
Roy W. Camblin III
/s/ Donald M. Corliss, Jr. President and Director January 21, 2000
- ------------------------------------
Donald M. Corliss, Jr.
/s/ David Bassett-Parkins Chief Operating Officer, Chief Financial January 21, 2000
- ------------------------------------ Officer and Director
David Bassett-Parkins (Principal Financial and Accounting Officer)
/s/ Scott Beebe Director January 21, 2000
- ------------------------------------
Scott Beebe
/s/ William Brock Director January 21, 2000
- ------------------------------------
William Brock
/s/ Ronald Spire Director January 21, 2000
- ------------------------------------
Ronald Spire
/s/ John Dillon Director January 21, 2000
- ------------------------------------
John Dillon
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
Exhibit
Number Exhibit Filed (F)
- -------- -------------------------------------------------------------
<S> <C> <C>
4.1 Netgateway, Inc. 1998 Stock Compensation Program (1)
4.2 Netgateway, Inc. 1998 Stock Option Plan for Senior Executives (2)
4.3 Netgateway, Inc. 1999 Stock Option Plan for Non-Executives F
4.4 Specimen of Common Stock Certificate (3)
4.5 Specimen of Common Stock Purchase Warrant F
4.6 Letter of Agreement re: Option Agreement Termination, dated
October 12, 1999, between Netgateway, Inc. and Keith D. Freadhoff F
4.7 Letter of Agreement re: Option Agreement Termination, dated
October 12, 1999, between Netgateway, Inc. and Donald M. Corliss, Jr. F
4.8 Letter of Agreement re: Option Agreement Termination, dated
October 12, 1999, between Netgateway, Inc. and David Bassett-Parkins F
4.9 Netgateway, Inc. Stock Grant Agreement, dated as of October 19, 1999,
between Netgateway, Inc. and Keith D. Freadhoff F
4.10 Netgateway, Inc. Stock Grant Agreement, dated as of October 19, 1999,
between Netgateway, Inc. and Donald M. Corliss, Jr. F
4.11 Netgateway, Inc. Stock Grant Agreement, dated as of October 19, 1999,
between Netgateway, Inc. and David Bassett-Parkins F
5.1 Opinion of Nida & Maloney, LLP F
23.1 Consent of KPMG LLP F
23.2 Consent of Nida & Maloney, LLP (included in Exhibit 5.1) F
24.1 Power of Attorney (see page II-4 of this Registration Statement)
- ---------------------------
</TABLE>
(1) Incorporated by reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-79751) filed with the
Securities and Exchange Commission on June 1, 1999.
(2) Incorporated by reference to Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-79751) filed with the
Securities and Exchange Commission on June 1, 1999.
(3) Incorporated by reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 (Registration No. 333-79751) filed with the
Securities and Exchange Commission on November 12, 1999.
II-5
<PAGE>
NETGATEWAY, INC.
1999 STOCK OPTION PLAN FOR NON-EXECUTIVES
1. Purpose; Type of Awards; Construction.
The purpose of the 1999 Stock Option Plan for Non-Executives (the "Plan")
of NetGateway, Inc., a Nevada corporation (the "Company"), is to attract and
retain employees (including officers), consultants and persons willing to serve
as directors of the Company, or any Subsidiary or Affiliate which now exists or
hereafter is organized or acquired, and to furnish additional incentives to such
persons by encouraging them to acquire a proprietary interest in the Company.
Pursuant to Section 6 of the Plan, there may be granted Options, including
"incentive stock options" and "nonqualified stock options". The Plan is intended
to satisfy the requirements of Rule 16b-3 promulgated under Section 16 of the
Exchange Act and shall be interpreted in a manner consistent with the
requirements thereof.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Administrator" means the Board or, if and so long as a Committee has
been established and is in existence, the Committee.
(b) "Affiliate" means any entity if, at the time of granting of an Option,
(i) the Company, directly, owns at least 20% of the combined voting power of all
classes of stock of such entity or at least 20% of the ownership interests in
such entity or (ii) such entity, directly or indirectly, owns at least 20% of
the combined voting power of all classes of stock of the Company.
(c) "Beneficiary" means the person, persons, trust or trusts which have
been designated by an Optionee in his or her most recent written beneficiary
designation filed with the Company to receive the benefits specified under the
Plan upon his or her death, or, if there is no designated Beneficiary or
surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the applicable laws of descent and distribution to receive
such benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company which will
be deemed to have occurred if:
(i) any "person," as such term is used in Section 13(d) and 14(d)
of the Exchange Act (other than an Exempt Person), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
voting securities;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (i), (iii), or (iv) of this Section 2(e)) whose election by
the Board or nomination for election by the Company's stockholders was
approved by a vote of at least a majority of the directors then still
in office who either were directors at the beginning of the period or
whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
<PAGE>
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinbefore defined), other
than an Exempt Person, acquired 50% or more of the combined voting
power of the Company's then outstanding securities, or
(iv) the stockholders of the Company approve of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
(g) "Committee" means the compensation committee of the Board, consisting
exclusively of two or more Non-Employee Directors (as defined in Rule 16b-3), if
and as the same may be established by the Board to administer the Plan;
provided, however, that to the extent required for the Plan to comply with the
applicable provisions of Section 162(m) of the Code, "Committee" means either
such committee or a subcommittee of that committee, as the case may be, which
shall be constituted to comply with the applicable requirements of Section
162(m) of the Code and the regulations promulgated thereunder.
(h) "Company" means NetGateway, Inc., a corporation organized under the
laws of the State of Nevada, or any successor corporation.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and as now or hereafter construed, interpreted and applied by
regulations, rulings and cases.
(j) "Exempt Person" means (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, (3)
any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of Stock, or
(4) any person or group of persons who, immediately prior to the adoption of
this Plan, owned more than 50% of the combined voting power of the Company's
then outstanding voting securities.
(k) "Fair Market Value" means, with respect to Stock or other property, the
fair market value of such Stock or other property determined by such methods or
procedures as shall be established from time to time by the Administrator.
Notwithstanding the foregoing, the per share Fair Market Value of Stock as of a
particular date shall mean (i) if the shares of Stock are then listed on a
national securities exchange, the closing sales price per share of Stock on the
national securities exchange on which the Stock is principally traded, for the
last preceding date on which there was a sale of such Stock on such exchange, or
(ii) if the shares of Stock are then traded on the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the reported per share closing price of the Stock on the day prior
to such date or, if there was no such price reported for such date, on the next
preceding date for which such a price was reported, or (iii) if the shares of
Stock are then traded in an over-the-counter market other than on the NASDAQ
National Market System, the average of the closing bid and asked prices for the
shares of Stock in such over-the-counter market for the last preceding date on
which there was a sale of such Stock in such market, or (iv) if the shares of
Stock are not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Administrator, in its sole
discretion, shall determine in good faith.
(l) "ISO" means any Option intended to be and designated as an incentive
stock option within the meaning of Section 422 of the Code.
2
<PAGE>
(m) "NQSO" means any Option not designated as an ISO.
(n) "Option" means a right, granted to an Optionee under Section 6(b) of
the Plan, to purchase shares of Stock. An Option may be either an ISO or an
NQSO.
(o) "Optionee" means a person who, as an employee (including officer),
consultant or director of the Company, a Subsidiary or an Affiliate, has been
granted an Option.
(p) "Plan" means this NetGateway, Inc. 1999 Stock Option Plan for
Non-Executives, as amended from time to time.
(q) "Rule 16b-3" means Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(r) "Stock" means the common stock, par value $.001 per share, of the
Company.
(s) "Stock Option Agreement" means any written agreement, contract, or
other instrument or document evidencing an Option.
(t) "Subsidiary" means any corporation in which the Company, directly or
indirectly, owns stock possessing 50% or more of the total combined voting power
of all classes of stock of such corporation.
3. Administration
The Plan shall be administered by the Administrator. The Administrator
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the persons to whom and
the time or times at which Options shall be granted; to determine the type and
number of Options to be granted, the number of shares of Stock to which Options
may relate and the terms, conditions, restrictions and performance criteria
relating to any Options; to determine whether, to what extent, and under what
circumstances Options may be settled, canceled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives included in, Options in recognition of
unusual or non-recurring events affecting the Company or any Subsidiary or
Affiliate or the financial statements of the Company or any Subsidiary or
Affiliate, or in response to changes in applicable laws, regulations, or
accounting principles; to designate Affiliates; to construe and interpret the
Plan and any Options; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Stock Option
Agreements (which need not be identical for each Optionee); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
The Administrator may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Administrator shall be made by a majority of its members either present in
person or participating by conference telephone at a meeting or by written
consent. The Administrator may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Administrator or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Administrator or such person may have under the Plan. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all persons, including the Company, and any Subsidiary, Affiliate or
Optionee (or any person claiming any rights under the Plan from or through any
Optionee) and any stockholder.
No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
3
<PAGE>
4. Eligibility.
Options may be granted to employees of the Company and its present or
future Subsidiaries and Affiliates, in the discretion of the Administrator. In
determining the person to whom Options shall be granted and the type of Options
granted (including the number of shares to be covered by such Options), the
Administrator shall take into account such factors as the Administrator shall
deem relevant in connection with accomplishing the purposes of the Plan.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 2,000,000 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in the open market, in private transactions or otherwise. The number of
shares of Stock available for issuance under the Plan shall be reduced by the
number of shares of Stock subject to outstanding Options. If any shares subject
to an Option are forfeited, canceled, exchanged or surrendered or if an Option
otherwise terminates or expires without a distribution of shares to the
Optionee, the shares of Stock with respect to such Option shall, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination or
expiration, again be available for Options under the Plan. In no event shall any
Optionee acquire, pursuant to any awards of Options under this Plan, more than
15% of the aggregate number of shares of Stock reserved for awards under the
Plan.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of an Optionee under the Plan, then the Administrator shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (i) the number and kind of shares of Stock which may thereafter be issued
in connection with Options, (ii) the number and kind of shares of Stock issued
or issuable in respect of outstanding Options, and (iii) the exercise price,
grant price, or purchase price relating to any Option; provided that, with
respect to ISOs, such adjustment shall be made in accordance with Section 424(h)
of the Code.
6. Specific Terms of Options.
(a) General. The term of each Option shall be for such period as may be
determined by the Administrator. The Administrator may make rules relating to
Options, and may impose on any Option or the exercise thereof, at the date of
grant or thereafter, such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Administrator shall determine.
(b) Options. The Administrator is authorized to grant Options to Optionees
on the following terms and conditions:
(i) Type of Option. The Stock Option Agreement evidencing the grant of
an Option under the Plan shall designate the Option as an ISO (in the event
its terms, and the individual to whom it is granted, satisfy the
requirements for ISOs under the Code), or an NQSO.
(ii) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Administrator; provided that in
the case of an ISO, such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option and,
in the case of an ISO granted to the holder of more than 10% of the Stock
outstanding at the date of grant of such Option, such exercise price shall
be not less than 110% of the Fair Market Value on such date of grant. In no
event shall the exercise price for the purchase of shares of Stock be less
than par value. The exercise price for Stock subject to an Option may be
paid in cash or by an exchange of Stock previously owned by the Optionee,
or a combination of both, in an amount having a combined value equal to
such exercise price. Any shares of Stock exchanged upon the exercise of any
4
<PAGE>
Option shall be valued at the Fair Market Value on the date on which such
shares are exchanged. An Optionee also may elect to pay all or a portion of
the aggregate exercise price by having shares of Stock with a Fair Market
Value on the date of exercise equal to the aggregate exercise price
withheld by the Company or sold by a broker-dealer in accordance with
applicable law.
(iii) Term and Exercisability of Options. The date on which the
Administrator adopts a resolution expressly granting an Option shall be
considered the day on which such Option is granted. Options shall be
exercisable over the exercise period (which shall not exceed ten years from
the date of grant or five years from the date of grant in the case of an
ISO granted to a holder of more than 10% of Stock outstanding as of such
date), at such times and upon such conditions as the Administrator may
determine, as reflected in the Stock Option Agreement. An Option may be
exercised to the extent of any or all full shares of Stock as to which the
Option has become exercisable, by giving written notice of such exercise to
the Company's Secretary and paying the exercise price as described in
Section 6(b)(ii).
(iv) Termination of Employment, etc. An Option may not be exercised
unless the Optionee is then in the employ of the Company or any Subsidiary
or Affiliate (or a company or a parent or subsidiary company of such
company issuing or assuming the Option in a transaction to which Section
424(a) of the Code applies), and unless the Optionee has continuously
maintained any of such relationships, since the date of grant of the
Option; provided that, the Stock Option Agreement may contain provisions
extending the exercisability of Options, in the event of specified
terminations, to a date not later than the expiration date of such Option.
The Administrator may establish a period during which the Beneficiaries of
an Optionee who died while an employee, director or independent contractor
of the Company or any Subsidiary or Affiliate or during any extended period
referred to in the immediately preceding proviso may exercise those Options
which were exercisable on the date of the Optionee's death; provided that,
no Option shall be exercisable after its expiration date.
(v) Nontransferability. Options shall not be transferable by an
Optionee except by will or the laws of descent and distribution and shall
be exercisable during the lifetime of an Optionee only by such Optionee or
his guardian or legal representative.
(vi) Other Provisions. Options may be subject to such other conditions
as the Administrator may prescribe in its discretion.
7. Change in Control Provisions.
In the event of a Change in Control, any and all Options then outstanding
shall become fully exercisable and vested, whether or not theretofore vested and
exercisable.
8. General Provisions.
(a) Compliance with Legal and Exchange Requirements. The Plan, the granting
and exercising of Options thereunder, and the other obligations of the Company
under the Plan and any Stock Option Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in its
discretion, may postpone the issuance or delivery of Stock under any Option
until completion of such stock exchange listing or registration or qualification
of such Stock or other required action under any state, federal or foreign law,
rule or regulation as the Company may consider appropriate, and may require any
Optionee to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Stock in
compliance with applicable laws, rules and regulations.
(b) No Right to Continued Employment, etc. Nothing in the Plan or in any
Option granted or Stock Option Agreement entered into pursuant to the Plan shall
confer upon any Optionee the right to continue in the employ of the Company, any
Subsidiary or any Affiliate, as the case may be, or to be entitled to any
5
<PAGE>
remuneration or benefits not set forth in the Plan or such Stock Option
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary or Affiliate to terminate such Optionee's employment,
directorship or independent contractor relationship.
(c) Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any Option granted, any payment relating to an Option under the
Plan (including from a distribution of Stock), or any other payment to an
Optionee, amounts of withholding and other taxes due in connection with any
transaction involving an Option, and to take such other action as the
Administrator may deem advisable to enable the Company and an Optionee to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Option. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of an Optionee's tax obligations.
(d) Amendment and Termination of the Plan. The Board may at any time and
from time to time alter, amend, suspend, or terminate the Plan in whole or in
part; provided that, no amendment which requires stockholder approval in order
for the Plan to continue to comply with Rule 16b-3 or Sections 422 and 424 of
the Code and the regulations promulgated thereunder shall be effective unless
the same shall be approved by the requisite vote of the stockholders of the
Company entitled to vote thereon. Notwithstanding the foregoing, no amendment
shall affect adversely any of the rights of any Optionee, without such
Optionee's consent, under any Option theretofore granted under the Plan.
(e) No Rights to Options; No Stockholder Rights. No Optionee shall have any
claim to be granted any Option under the Plan, and there is no obligation for
uniformity of treatment of Optionees. Except as provided specifically herein, an
Optionee or a transferee of an Option shall have no rights as a stockholder with
respect to any shares covered by the Option until the date of the issuance of a
stock certificate to such Optionee for such shares.
(f) Unfunded Status of Options. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. Nothing contained in
the Plan or any Option shall give any such Optionee any rights that are greater
than those of a general creditor of the Company.
(g) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Option. The Administrator shall determine
whether cash, other Options, or other property shall be issued or paid in lieu
of such fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
(h) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of California without
giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall be effective as of July 1, 1999.
(j) Plan Termination. The Board may terminate the Plan at any time with
respect to any shares of Stock that are not subject to Options. Unless
terminated earlier by the Board, the Plan shall terminate ten years after the
effective date and no Options shall be granted under the Plan after such date.
Termination of the Plan under this Section 8(j) will not affect the rights and
obligations of any Optionee with respect to Options granted prior to
termination.
6
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES TO BE RECEIVED UPON EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION WITH
RESPECT TO SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE
STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH QUALIFICATION AND
REGISTRATION.
COMMON STOCK PURCHASE WARRANT
No. ___ ____________, 1999
NETGATEWAY, INC., a Nevada corporation (the "Company"), having its
executive offices at 300 Oceangate, Suite 500, Long Beach, California 90802,
does hereby certify and agree that, for good and valuable consideration (the
existence, sufficiency and receipt of which are hereby acknowledged by the
Company
________________________________________________________________________________
his heirs, successors and assigns ("Holder"), hereby is entitled to purchase
from the Company, during the term set forth in Section 1 hereof, up to an
aggregate amount of * * shares (the "Exercise Quantity") of duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock, par value
US$.001 per share, of the Company (the "Common Stock"), all upon the terms and
provisions and subject to adjustment of such Exercise Quantity as provided in
this Common Stock Purchase Warrant (the "Warrant"). The exercise price per share
of Common Stock for which this Warrant is exercisable shall be _______ AND
___/ONE HUNDREDTHS DOLLARS ($____), as adjusted from time to time pursuant to
the terms of this Warrant (the "Exercise Price").
The term of this Warrant commences as of the date hereof, and
shall expire at 5:00 P.M., Pacific time, on ______, 2001. In
the event that this Warrant would expire on a day that is not
a Business Day (as defined below), then the term of this
Warrant automatically shall be extended to 5:00 P.M., Pacific
time, on the next succeeding Business Day.
This Warrant may be exercised by the Holder of this Warrant at any time
during the term hereof, in whole or in part, from time to time (but not for
fractional shares, unless this Warrant is exercised in whole), by
presentation and surrender of this Warrant to the Company, duly completed
and executed for exercise, together with payment in the aggregate amount
equal to the Exercise Price multiplied by the number of shares of Common
Stock being purchased. Payment of the Exercise Price shall be by certified
check payable to the order of the Company. Upon the Company's receipt of
this Warrant, duly completed and signed for exercise, and the requisite
payment, the Company shall issue and deliver (or cause to be delivered) to
the exercising Holder stock certificates aggregating the number of shares
of Common Stock purchased. In the event of a partial exercise of this
Warrant, the Company shall issue and deliver to the Holder a new Warrant at
the same time such stock certificates are delivered, which new Warrant
shall entitle the Holder to purchase the balance of the Exercise Quantity
not purchased in that partial exercise and shall otherwise be upon the same
terms and provisions as this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
NETGATEWAY, INC.,
a Nevada corporation
Attest:
By: _______________________________ By: ________________________
Hanh M. Ngo Donald M. Corliss, Jr.
Secretary President
<PAGE>
1. Exercise. Upon the due exercise by the Holder of this Warrant,
whether in whole or in part, the Holder (or any other person to whom a stock
certificate is to be so issued) shall be deemed for all purposes to have become
the Holder of record of the shares of Common Stock for which this Warrant has
been so exercised (the "Warrant Securities"), effective immediately prior to the
close of business on the date this Warrant, the completed and signed Exercise
Form and the requisite payment were duly delivered to the Company, irrespective
of the date of actual delivery of certificates representing such shares of
Common Stock so issued. In the event the Holder of this Warrant desires that any
or all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, (ii) provide to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that the proposed transfer
may be effected without registration under the Securities Act, and (iii) pay to
the Company funds sufficient to pay all stock transfer taxes (if any) payable in
connection with the transfer and delivery of such stock certificates.
2. Surrender of Warrant; Expenses. Whether in connection with the
exercise, exchange, registration of transfer or replacement of this Warrant,
surrender of this Warrant shall be made to the Company during normal business
hours on a Business Day (unless the Company otherwise permits) at the executive
offices of the Company specified above, or to such other office or duly
authorized representative of the Company as from time to time may be designated
by the Company by written notice given to the Holder of this Warrant. The Holder
shall pay all costs and expenses incurred in connection with the exercise,
registering, exchange, transfer or replacement of this Warrant (excluding the
costs of preparation, execution and delivery of warrants and stock certificates)
and shall pay all taxes and other charges imposed by law payable in connection
with the exercise, registration, exchange, transfer or replacement of this
Warrant.
3. Warrant Register; Transfer; Loss. The Company at all times shall
maintain at its chief executive offices an open register for all Warrants, in
which the Company shall record the name and address of each person to whom a
Warrant has been issued or transferred, the number of shares of Common Stock or
other securities purchasable thereunder and the corresponding purchase prices.
Neither this Warrant nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of this Warrant or the Warrant Securities, as the
case may be, under the Securities Act, and such registration or qualification as
may be necessary under the securities laws of any state, have become effective,
or (ii) the Holder has delivered evidence reasonably satisfactory to the Company
that such registration or qualification is not required. This Warrant may be
transferred only in accordance with the provisions hereof, in whole or in part,
by the Holder or any duly authorized representative of such Holder. A transfer
may be registered with the Company by submission to it of this Warrant, duly
completed and signed for assignment, and an opinion of counsel reasonably
satisfactory to the Company. Within five (5) Business Days after the Company's
receipt of this Warrant so completed and executed and opinion, the Company will
issue and deliver to the transferee a new Warrant representing the portion of
the Exercise Quantity transferred at the same Exercise Price per share and
otherwise having the same terms and provisions as this Warrant, which the
Company will register in the new Holder' s name. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant, and (a) in the case of loss, theft or
destruction, upon receipt by the Company of indemnity reasonably satisfactory to
it or (b) in the case of mutilation, upon surrender and cancellation thereof,
the Company, at its expense, will execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) this
Warrant. The Company will from time to time take all such action as may be
necessary to assure that the par value per share of the unissued Common Stock
acquirable upon exercise of this Warrant is at all times equal or less than the
Exercise Price then in effect.
4. Adjustment of Exercise Price in the Event of Dividends, Stock Splits
and Reverse Stock Splits. In case the Company shall at any time issue Common
Stock or Common Stock equivalents by way of a dividend or other distribution on
any stock of the Company or effect a stock split or reverse stock split of the
outstanding shares of Common Stock, the Exercise Price then in effect shall be
proportionately decreased in the case of such issuance (on the day following the
date fixed for determining shareholders entitled to receive such dividend or
other distribution) or decreased in the case of such stock split or increased in
the case of such reverse stock split (on the date that such stock split or
reverse stock split shall become effective), by multiplying the Exercise Price
in effect immediately prior to the stock dividend, stock split or reverse stock
split by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such stock dividend, stock split or
reverse stock split, and the denominator of which is the number of shares of
Common Stock outstanding immediately after such stock dividend, stock split or
reverse stock split.
2
<PAGE>
5. Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company with or into another corporation or
entity, (iii) the disposition or transfer of the assets of the Company other
than in the ordinary course of the Company's business, or (iv) the dissolution,
liquidation or winding up of the Company, the Holder of this Warrant shall
thereafter be entitled to purchase upon exercise hereof the kind and amount of
shares of stock and other securities and property receivable in such transaction
by a holder of the number of shares of Common Stock of the Company into which
this Agreement entitled the holder to purchase immediately prior to such capital
reorganization, reclassification of capital stock, non-surviving combination or
disposition.
6. Certain Definitions. "Fair Value" as of a particular date shall mean
the last sale price of the Common Stock as reported on a national securities
exchange or on the Nasdaq SmallCap or National Market System or, if a last sale
reporting quotation is not available for the Common Stock, the average of the
bid and asked prices of the Common Stock as reported by The Nasdaq Stock Market,
Inc. or on Nasdaq's OTC Bulletin Board Service, or if not so reported, as listed
in the National Quotation Bureau, Inc.'s "Pink Sheets." If such quotations are
unavailable, or with respect to other appropriate security, property, assets,
business or entity, "Fair Value" shall mean the fair value of such item as
determined by the Board of Directors of the Company.
7. Governing Law. WITH RESPECT TO CORPORATE MATTERS, THIS WARRANT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEVADA AND, WITH RESPECT TO ALL OTHER MATTERS, THIS WARRANT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, IN EACH CASE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Exercise; Transfer. The undersigned Holder of this Warrant hereby
irrevocably elects to exercise this Warrant to the extent of
[____________________________] shares of Common Stock, $.001 par value per
share, of the Company. The undersigned herewith encloses a certified check
payable to the order of the Company in the amount of $_____________ in payment
of the Exercise Price.
FOR VALUE RECEIVED, the undersigned Holder hereby sells, assigns and
transfers unto the transferee whose name and address are set forth below all of
the rights of the undersigned under this Warrant (to the extent of the portion
of the within Warrant being transferred hereby, which portion is
______________).
Name of Transferee: ___________________________________
State of Organization (if applicable): ________________
Federal TIN or SSN: ___________________________________
Address: ______________________________________________
The undersigned does hereby irrevocably constitute and appoint
________________________ attorney to register the foregoing transfer on the
books of the Company maintained for that purpose, with full power of
substitution in the premises. As required, enclosed herewith is the opinion of
legal counsel for the undersigned.
If this exercise or transfer is not an exercise or transfer in full,
then the undersigned Holder hereby requests that a new Warrant of like tenor
(exercisable for the balance of the Exercise Quantity of shares of Common Stock
underlying this Warrant) be issued and delivered to the undersigned Holder at
the address on the warrant register of the Company.
Dated: ____________________
------------------------------------
(Name of Registered Holder - Please Print)
By: ________________________________
(Signature of Registered Holder or of
Duly Authorized Signatory)
3
<PAGE>
October 12, 1999
VIA HAND DELIVERY
Mr. Keith D. Freadhoff
Chairman of the Board of Directors
Netgateway, Inc.
300 Oceangate, Suite 500
Long Beach, CA 90802
Re: Option Agreement Termination
Dear Keith:
Reference is made to: (a) the Netgateway, Inc. Stock Option Agreement
Pursuant to the 1998 Stock Option Plan for Senior Executives, by and between you
and Netgateway Inc. (the "Company"), dated as of December 15, 1998, pursuant to
which you were granted the right and option to purchase from the Company all or
a part of an aggregate of 400,000 shares of common stock of the Company at a
purchase price of $4.87 per share, subject to the terms and conditions contained
therein; and (b) the Netgateway, Inc. Stock Option Agreement Pursuant to the
1998 Stock Option Plan for Senior Executives, by and between you and the
"Company", dated as of December 15, 1998, pursuant to which you were granted the
right and option to purchase from the Company all or a part of an aggregate of
276,000 shares of common stock of the Company at a purchase price of $2.50 per
share, subject to the terms and conditions contained therein (collectively, the
"Option Agreements").
This will confirm that you and the Company agree that the Option
Agreements shall be, and hereby are, terminated in all respects, effective as of
the date hereof. Any and all options granted under the Option Agreements,
whether vested or unvested, shall be deemed forfeited, and all of your rights
under the Option Agreements, if any, shall be terminated.
Please acknowledge your consent to the foregoing by signing in the
space provided below and returning a copy of this letter to the Company.
Very truly yours,
NETGATEWAY, INC.
By: /s/ Roy W. Camblin III
----------------------
Roy W. Camblin III
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Keith D. Freadhoff
- --------------------------
Keith D. Freadhoff
Dated: October 12, 1999
October 12, 1999
VIA HAND DELIVERY
Mr. Donald M. Corliss, Jr.
President
Netgateway, Inc.
300 Oceangate
Suite 500
Long Beach, CA 90802
Re: Termination of Option Agreements
Dear Don:
Reference is made to: (a) the Netgateway, Inc. Stock Option Agreement
Pursuant to the 1998 Stock Option Plan for Senior Executives, by and between you
and Netgateway Inc. (the "Company"), dated as of December 15, 1998, pursuant to
which you were granted the right and option to purchase from the Company all or
a part of an aggregate of 400,000 shares of common stock of the Company at a
purchase price of $4.87 per share, subject to the terms and conditions contained
therein; and (b) the Netgateway, Inc. Stock Option Agreement Pursuant to the
1998 Stock Option Plan for Senior Executives, by and between you and the
"Company", dated as of December 15, 1998, pursuant to which you were granted the
right and option to purchase from the Company all or a part of an aggregate of
264,000 shares of common stock of the Company at a purchase price of $2.50 per
share, subject to the terms and conditions contained therein (collectively, the
"Option Agreements").
This will confirm that you and the Company agree that the Option
Agreements shall be, and hereby are, terminated in all respects, effective as of
the date hereof. Any and all options granted under the Option Agreements,
whether vested or unvested, shall be deemed forfeited, and all of your rights
under the Option Agreements, if any, shall be terminated.
Please acknowledge your consent to the foregoing by signing in the
space provided below and returning a copy of this letter to the Company.
Very truly yours,
NETGATEWAY, INC.
/s/ Roy W. Camblin III
By: ______________________
Roy W. Camblin III
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ Donald M. Corliss, Jr.
- --------------------------
Donald M. Corliss, Jr.
Dated: October 12, 1999
October 12, 1999
VIA HAND DELIVERY
Mr. David Bassett-Parkins
Chief Operating Officer and Chief Financial Officer
Netgateway, Inc.
300 Oceangate
Suite 500
Long Beach, CA 90802
Re: Termination of Option Agreements
Dear David:
Reference is made to: (a) the Netgateway, Inc. Stock Option Agreement
Pursuant to the 1998 Stock Option Plan for Senior Executives, by and between you
and Netgateway Inc. (the "Company"), dated as of December 15, 1998, pursuant to
which you were granted the right and option to purchase from the Company all or
a part of an aggregate of 400,000 shares of common stock of the Company at a
purchase price of $4.87 per share, subject to the terms and conditions contained
therein; and (b) the Netgateway, Inc. Stock Option Agreement Pursuant to the
1998 Stock Option Plan for Senior Executives, by and between you and the
"Company", dated as of December 15, 1998, pursuant to which you were granted the
right and option to purchase from the Company all or a part of an aggregate of
240,000 shares of common stock of the Company at a purchase price of $2.50 per
share, subject to the terms and conditions contained therein (collectively, the
"Option Agreements").
This will confirm that you and the Company agree that the Option
Agreements shall be, and hereby are, terminated in all respects, effective as of
the date hereof. Any and all options granted under the Option Agreements,
whether vested or unvested, shall be deemed forfeited, and all of your rights
under the Option Agreements, if any, shall be terminated.
Please acknowledge your consent to the foregoing by signing in the
space provided below and returning a copy of this letter to the Company.
Very truly yours,
NETGATEWAY, INC.
/s/ Roy W. Camblin III
By: ______________________
Roy W. Camblin III
Chief Executive Officer
ACCEPTED AND AGREED:
/s/ David Bassett-Parkins
- --------------------------
David Bassett-Parkins
Dated: October 12, 1999
NETGATEWAY, INC.
STOCK GRANT AGREEMENT
Stock Grant Agreement (the "Agreement"), dated as of this 19th day of
October, 1999, between Netgateway, Inc., a Nevada corporation (the "Company"),
and Keith D. Freadhoff (the "Grantee").
The Grantee is a senior executive of the Company.
Prior to the date hereof, the Grantee held compensation and performance
options to purchase up to an aggregate of 676,000 shares of common stock of the
Company (the "Options"). By separate Letter Agreement dated of even date
herewith, the Grantee has agreed to terminate the Options.
In exchange for terminating the Options, the Compensation Committee (the
"Committee") of the Board of Directors has determined that it is in the best
interests of the Company to issue to the Grantee restricted common stock of the
Company as compensation for the services that the Grantee has rendered and will
continue to render to the Company, on the terms and conditions set forth herein.
In consideration of the premises and the mutual agreements set forth below,
the parties hereto agree as follows:
1. Grant of Stock. Pursuant to the terms and conditions set forth herein,
the Company hereby grants and issues to the Grantee (the "Grant") as of the date
hereof (the "Grant Date), up to an aggregate of 400,000 shares (the "Shares") of
the common stock, par value $.01 per share, of the Company (the "Common Stock")
as hereinafter provided.
2. Nontransferability. Until the Shares hereunder shall vest in accordance
with Section 3 hereof, the Shares and any other rights granted hereunder shall
not be transferable or assignable by the Grantee (whether by operation of law or
otherwise) except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
3. Vesting of Shares. Subject to the other terms set forth herein, the
Shares will vest in the Grantee in full on March 31, 2000.
4. Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any distribution of Shares amounts of withholding and other taxes
due in connection with any transaction involving the Grant, and to take such
other action as the Committee may deem advisable to enable the Company or such
Subsidiary or Affiliate and the Grantee to satisfy obligations for the payment
of withholding taxes and other tax obligations relating to the Grant, if any.
This authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of the
Grantee's tax obligations.
5. Termination of Employment, etc. Upon termination of the Grantee's
employment for any reason, including the breach by the Grantee of the Employment
Agreement among the Grantee, the Company and Netgateway, a corporation organized
under the laws of the State of Nevada and a wholly owned Subsidiary of the
Company, dated as of January 1, 1999 (the "Employment Agreement"), any Shares
not already vested in accordance with Section 3 hereof, shall be subject to
immediate forfeiture in all respects and Grantee shall have no right or claim to
any such unvested Shares.
6. Adjustments. In the event that the Committee shall determine, in its
sole discretion, that any dividend or other distribution (whether in the form of
cash, shares of Common Stock or other property), recapitalization, stock split,
reverse split, any reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, license arrangement, strategic alliance or other
similar corporate transaction or event affects the Shares such that an
adjustment is appropriate to prevent dilution or enlargement of the rights of
the Grantee, then the Committee shall make such equitable changes or adjustments
as it deems necessary or appropriate to any or all of the number and kind of
Shares which may thereafter be issued in connection herewith.
7. No Rights as Stockholder. The Grantee shall have no rights as a
stockholder with respect to any Shares subject to the Grant prior to the date on
which such Shares shall vest in accordance with Section 3 hereof.
<PAGE>
8. Representations of the Company.
a. Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
b. Corporate Power. The Company has all necessary corporate power and
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby, and has all requisite corporate power and authority to
issue the Shares hereunder and to carry out the transactions contemplated
hereby.
c. Shares. Upon issuance, the Shares will be duly authorized, validly
issued, fully paid and nonassessable, and issued in accordance with applicable
laws.
9. Representations of the Grantee.
a. Authority. The Grantee has duly executed and delivered this Agreement to
the Company, and its obligations hereunder are the legal, valid and binding
obligations of the Grantee and are enforceable in accordance with their terms
b. Restriction on Transfer; Risk of Forfeiture. The Grantee hereby
acknowledges and agrees that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or qualified with the securities
regulatory agency of any state and may not be resold or otherwise disposed of
unless registered under the Act or qualified with the securities regulatory
agency of any state which has jurisdiction over any such transfer or unless an
exemption from such registration or qualification is available. The Grantee will
transfer the Shares only in accordance with the applicable requirements of all
federal and state securities laws. The Grantee acknowledges that the
certificate(s) evidencing the Shares will bear a legend regarding restriction on
transfer. The Grantee further acknowledges that the Shares are subject to a
substantial risk of forfeiture as set forth in Section 5 hereof.
c. Investment. The Grantee is receiving the Shares for its own account, for
investment purposes only, and not for the account of any other person, and not
with a view to, or for offer or sale in connection with, any distribution,
assignment or resale to others or to fractionalization in whole or in part.
10. No Rights to Continued Employment. Nothing in the Grant or this
Agreement shall confer upon the Grantee the right to continue in service or be
entitled to any remuneration or benefits not set forth in this Agreement or to
interfere with or limit in any way the right of the Company or any Subsidiary or
Affiliate to terminate the Grantee's service as an officer of the Company or any
Subsidiary or Affiliate.
11. Compliance with Legal and Exchange Requirements. The granting, issuance
and delivery of the Shares pursuant to the terms of this Agreement and the other
obligations of the Company hereunder shall be subject to all applicable federal
and state laws, rules and regulations, and to such approvals by any regulatory
or governmental agency as may be required. The Company, in its discretion, may
postpone the issuance or delivery of Shares hereunder until completion of such
stock exchange listing or registration or qualification of such Shares or other
required action under any state, federal or foreign law, rule or regulation as
the Company may consider appropriate, and may require the Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations.
12. Change in Control Provisions. In the event of a Change in Control (as
defined in the Employment Agreement), the Shares shall become fully vested,
whether or not theretofore vested as forth herein, as more fully described in
Section 4(g) of the Employment Agreement.
13. Notices. All notices or any other communications hereunder shall be in
writing and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to Netgateway, Inc., 300 Oceangate, Long
Beach, California 90802; Attention: Secretary, and if to the Grantee, at the
address set forth on the signature page hereof, subject to the right of either
party to designate at any time hereafter in writing some other address.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to the
conflict of laws principles thereof.
15. No Assignment. Neither this Agreement nor any of the rights or
obligations of the Grantee hereunder may be transferred or assigned by the
Grantee except as set forth in paragraph 2 hereof.
2
<PAGE>
16. Benefits. This Agreement shall be binding upon and inure to the benefit
of the parties hereto. This Agreement is for the sole benefit of the parties
hereto and not for the benefit of any other party.
17. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law, the remaining provisions shall
be severable and enforceable in accordance with their terms.
18. Amendments. No modification, amendment or waiver or any provision of
this Agreement shall be effective unless it is in writing and signed by the
parties hereto.
19. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by the Chief Executive Officer, and Grantee has executed this
Agreement, both as of the day and year first above written.
NETGATEWAY, INC.
By: /s/ Roy W. Camblin, III
--------------------------
Roy W. Camblin, III
Chief Executive Officer
/s/ Keith D. Freadhoff
- -----------------------------
Keith D. Freadhoff
4
<PAGE>
NETGATEWAY, INC.
STOCK GRANT AGREEMENT
Stock Grant Agreement (the "Agreement"), dated as of this 19th day of
October, 1999, between Netgateway, Inc., a Nevada corporation (the "Company"),
and Donald M. Corliss, Jr. (the "Grantee").
The Grantee is a senior executive of the Company.
Prior to the date hereof, the Grantee held compensation and performance
options to purchase up to an aggregate of 664,000 shares of common stock of the
Company (the "Options"). By separate Letter Agreement dated of even date
herewith, the Grantee has agreed to terminate the Options.
In exchange for terminating the Options, the Compensation Committee (the
"Committee") of the Board of Directors has determined that it is in the best
interests of the Company to issue to the Grantee restricted common stock of the
Company as compensation for the services that the Grantee has rendered and will
continue to render to the Company, on the terms and conditions set forth herein.
In consideration of the premises and the mutual agreements set forth below,
the parties hereto agree as follows:
1. Grant of Stock. Pursuant to the terms and conditions set forth herein,
the Company hereby grants and issues to the Grantee (the "Grant") as of the date
hereof (the "Grant Date), up to an aggregate of 400,000 shares (the "Shares") of
the common stock, par value $.01 per share, of the Company (the "Common Stock")
as hereinafter provided.
2. Nontransferability. Until the Shares hereunder shall vest in accordance
with Section 3 hereof, the Shares and any other rights granted hereunder shall
not be transferable or assignable by the Grantee (whether by operation of law or
otherwise) except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
3. Vesting of Shares. Subject to the other terms set forth herein, the
Shares will vest in the Grantee in full on March 31, 2000.
4. Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any distribution of Shares amounts of withholding and other taxes
due in connection with any transaction involving the Grant, and to take such
other action as the Committee may deem advisable to enable the Company or such
Subsidiary or Affiliate and the Grantee to satisfy obligations for the payment
of withholding taxes and other tax obligations relating to the Grant, if any.
This authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of the
Grantee's tax obligations.
5. Termination of Employment, etc. Upon termination of the Grantee's
employment for any reason, including the breach by the Grantee of the Employment
Agreement among the Grantee, the Company and Netgateway, a corporation organized
under the laws of the State of Nevada and a wholly owned Subsidiary of the
Company, dated as of January 1, 1999 (the "Employment Agreement"), any Shares
not already vested in accordance with Section 3 hereof, shall be subject to
immediate forfeiture in all respects and Grantee shall have no right or claim to
any such unvested Shares.
6. Adjustments. In the event that the Committee shall determine, in its
sole discretion, that any dividend or other distribution (whether in the form of
cash, shares of Common Stock or other property), recapitalization, stock split,
reverse split, any reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, license arrangement, strategic alliance or other
similar corporate transaction or event affects the Shares such that an
adjustment is appropriate to prevent dilution or enlargement of the rights of
the Grantee, then the Committee shall make such equitable changes or adjustments
as it deems necessary or appropriate to any or all of the number and kind of
Shares which may thereafter be issued in connection herewith.
<PAGE>
7. No Rights as Stockholder. The Grantee shall have no rights as a
stockholder with respect to any Shares subject to the Grant prior to the date on
which such Shares shall vest in accordance with Section 3 hereof.
8. Representations of the Company.
a. Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
b. Corporate Power. The Company has all necessary corporate power and
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby, and has all requisite corporate power and authority to
issue the Shares hereunder and to carry out the transactions contemplated
hereby.
c. Shares. Upon issuance, the Shares will be duly authorized, validly
issued, fully paid and nonassessable, and issued in accordance with applicable
laws.
9. Representations of the Grantee.
a. Authority. The Grantee has duly executed and delivered this Agreement to
the Company, and its obligations hereunder are the legal, valid and binding
obligations of the Grantee and are enforceable in accordance with their terms
b. Restriction on Transfer; Risk of Forfeiture. The Grantee hereby
acknowledges and agrees that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or qualified with the securities
regulatory agency of any state and may not be resold or otherwise disposed of
unless registered under the Act or qualified with the securities regulatory
agency of any state which has jurisdiction over any such transfer or unless an
exemption from such registration or qualification is available. The Grantee will
transfer the Shares only in accordance with the applicable requirements of all
federal and state securities laws. The Grantee acknowledges that the
certificate(s) evidencing the Shares will bear a legend regarding restriction on
transfer. The Grantee further acknowledges that the Shares are subject to a
substantial risk of forfeiture as set forth in Section 5 hereof.
c. Investment. The Grantee is receiving the Shares for its own account, for
investment purposes only, and not for the account of any other person, and not
with a view to, or for offer or sale in connection with, any distribution,
assignment or resale to others or to fractionalization in whole or in part.
10. No Rights to Continued Employment. Nothing in the Grant or this
Agreement shall confer upon the Grantee the right to continue in service or be
entitled to any remuneration or benefits not set forth in this Agreement or to
interfere with or limit in any way the right of the Company or any Subsidiary or
Affiliate to terminate the Grantee's service as an officer of the Company or any
Subsidiary or Affiliate.
11. Compliance with Legal and Exchange Requirements. The granting, issuance
and delivery of the Shares pursuant to the terms of this Agreement and the other
obligations of the Company hereunder shall be subject to all applicable federal
and state laws, rules and regulations, and to such approvals by any regulatory
or governmental agency as may be required. The Company, in its discretion, may
postpone the issuance or delivery of Shares hereunder until completion of such
stock exchange listing or registration or qualification of such Shares or other
required action under any state, federal or foreign law, rule or regulation as
the Company may consider appropriate, and may require the Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations.
12. Change in Control Provisions. In the event of a Change in Control (as
defined in the Employment Agreement), the Shares shall become fully vested,
whether or not theretofore vested as forth herein, as more fully described in
Section 4(g) of the Employment Agreement.
13. Notices. All notices or any other communications hereunder shall be in
writing and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to Netgateway, Inc., 300 Oceangate, Long
Beach, California 90802; Attention: Secretary, and if to the Grantee, at the
address set forth on the signature page hereof, subject to the right of either
party to designate at any time hereafter in writing some other address.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to the
conflict of laws principles thereof.
2
<PAGE>
15. No Assignment. Neither this Agreement nor any of the rights or
obligations of the Grantee hereunder may be transferred or assigned by the
Grantee except as set forth in paragraph 2 hereof.
16. Benefits. This Agreement shall be binding upon and inure to the benefit
of the parties hereto. This Agreement is for the sole benefit of the parties
hereto and not for the benefit of any other party.
17. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law, the remaining provisions shall
be severable and enforceable in accordance with their terms.
18. Amendments. No modification, amendment or waiver or any provision of
this Agreement shall be effective unless it is in writing and signed by the
parties hereto.
19. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by the Chief Executive Officer, and Grantee has executed this
Agreement, both as of the day and year first above written.
NETGATEWAY, INC.
By: /s/ Roy W. Camblin, III
--------------------------
Roy W. Camblin, III
Chief Executive Officer
/s/ Donald M. Corliss, Jr.
- -----------------------------
Donald M. Corliss, Jr.
4
<PAGE>
NETGATEWAY, INC.
STOCK GRANT AGREEMENT
Stock Grant Agreement (the "Agreement"), dated as of this 19th day of
October, 1999, between Netgateway, Inc., a Nevada corporation (the "Company"),
and David Bassett-Parkins (the "Grantee").
The Grantee is a senior executive of the Company.
Prior to the date hereof, the Grantee held compensation and performance
options to purchase up to an aggregate of 640,000 shares of common stock of the
Company (the "Options"). By separate Letter Agreement dated of even date
herewith, the Grantee has agreed to terminate the Options.
In exchange for terminating the Options, the Compensation Committee (the
"Committee") of the Board of Directors has determined that it is in the best
interests of the Company to issue to the Grantee restricted common stock of the
Company as compensation for the services that the Grantee has rendered and will
continue to render to the Company, on the terms and conditions set forth herein.
In consideration of the premises and the mutual agreements set forth
below, the parties hereto agree as follows:
1. Grant of Stock. Pursuant to the terms and conditions set forth herein,
the Company hereby grants and issues to the Grantee (the "Grant") as of the date
hereof (the "Grant Date), up to an aggregate of 400,000 shares (the "Shares") of
the common stock, par value $.01 per share, of the Company (the "Common Stock")
as hereinafter provided.
2. Nontransferability. Until the Shares hereunder shall vest in accordance
with Section 3 hereof, the Shares and any other rights granted hereunder shall
not be transferable or assignable by the Grantee (whether by operation of law or
otherwise) except by will or the laws of descent and distribution or, if then
permitted under Rule 16b-3, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
3. Vesting of Shares. Subject to the other terms set forth herein, the
Shares will vest in the Grantee in full on March 31, 2000.
4. Taxes. The Company or any Subsidiary or Affiliate is authorized to
withhold from any distribution of Shares amounts of withholding and other taxes
due in connection with any transaction involving the Grant, and to take such
other action as the Committee may deem advisable to enable the Company or such
Subsidiary or Affiliate and the Grantee to satisfy obligations for the payment
of withholding taxes and other tax obligations relating to the Grant, if any.
This authority shall include authority to withhold or receive Shares or other
property and to make cash payments in respect thereof in satisfaction of the
Grantee's tax obligations.
5. Termination of Employment, etc. Upon termination of the Grantee's
employment for any reason, including the breach by the Grantee of the Employment
Agreement among the Grantee, the Company and Netgateway, a corporation organized
under the laws of the State of Nevada and a wholly owned Subsidiary of the
Company, dated as of January 1, 1999 (the "Employment Agreement"), any Shares
not already vested in accordance with Section 3 hereof, shall be subject to
immediate forfeiture in all respects and Grantee shall have no right or claim to
any such unvested Shares.
6. Adjustments. In the event that the Committee shall determine, in its
sole discretion, that any dividend or other distribution (whether in the form of
cash, shares of Common Stock or other property), recapitalization, stock split,
reverse split, any reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, license arrangement, strategic alliance or other
similar corporate transaction or event affects the Shares such that an
adjustment is appropriate to prevent dilution or enlargement of the rights of
the Grantee, then the Committee shall make such equitable changes or adjustments
as it deems necessary or appropriate to any or all of the number and kind of
Shares which may thereafter be issued in connection herewith.
7. No Rights as Stockholder. The Grantee shall have no rights as a
stockholder with respect to any Shares subject to the Grant prior to the date on
which such Shares shall vest in accordance with Section 3 hereof.
<PAGE>
8. Representations of the Company.
a. Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
b. Corporate Power. The Company has all necessary corporate power and
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby, and has all requisite corporate power and authority to
issue the Shares hereunder and to carry out the transactions contemplated
hereby.
c. Shares. Upon issuance, the Shares will be duly authorized, validly
issued, fully paid and nonassessable, and issued in accordance with applicable
laws.
9. Representations of the Grantee.
a. Authority. The Grantee has duly executed and delivered this Agreement to
the Company, and its obligations hereunder are the legal, valid and binding
obligations of the Grantee and are enforceable in accordance with their terms
b. Restriction on Transfer; Risk of Forfeiture. The Grantee hereby
acknowledges and agrees that the Shares have not been registered under the
Securities Act of 1933, as amended (the "Act"), or qualified with the securities
regulatory agency of any state and may not be resold or otherwise disposed of
unless registered under the Act or qualified with the securities regulatory
agency of any state which has jurisdiction over any such transfer or unless an
exemption from such registration or qualification is available. The Grantee will
transfer the Shares only in accordance with the applicable requirements of all
federal and state securities laws. The Grantee acknowledges that the
certificate(s) evidencing the Shares will bear a legend regarding restriction on
transfer. The Grantee further acknowledges that the Shares are subject to a
substantial risk of forfeiture as set forth in Section 5 hereof.
c. Investment. The Grantee is receiving the Shares for its own account, for
investment purposes only, and not for the account of any other person, and not
with a view to, or for offer or sale in connection with, any distribution,
assignment or resale to others or to fractionalization in whole or in part.
10. No Rights to Continued Employment. Nothing in the Grant or this
Agreement shall confer upon the Grantee the right to continue in service or be
entitled to any remuneration or benefits not set forth in this Agreement or to
interfere with or limit in any way the right of the Company or any Subsidiary or
Affiliate to terminate the Grantee's service as an officer of the Company or any
Subsidiary or Affiliate.
11. Compliance with Legal and Exchange Requirements. The granting, issuance
and delivery of the Shares pursuant to the terms of this Agreement and the other
obligations of the Company hereunder shall be subject to all applicable federal
and state laws, rules and regulations, and to such approvals by any regulatory
or governmental agency as may be required. The Company, in its discretion, may
postpone the issuance or delivery of Shares hereunder until completion of such
stock exchange listing or registration or qualification of such Shares or other
required action under any state, federal or foreign law, rule or regulation as
the Company may consider appropriate, and may require the Grantee to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of Shares in compliance with applicable
laws, rules and regulations.
12. Change in Control Provisions. In the event of a Change in Control (as
defined in the Employment Agreement), the Shares shall become fully vested,
whether or not theretofore vested as forth herein, as more fully described in
Section 4(g) of the Employment Agreement.
13. Notices. All notices or any other communications hereunder shall be in
writing and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to Netgateway, Inc., 300 Oceangate, Long
Beach, California 90802; Attention: Secretary, and if to the Grantee, at the
address set forth on the signature page hereof, subject to the right of either
party to designate at any time hereafter in writing some other address.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to the
conflict of laws principles thereof.
15. No Assignment. Neither this Agreement nor any of the rights or
obligations of the Grantee hereunder may be transferred or assigned by the
Grantee except as set forth in paragraph 2 hereof.
2
<PAGE>
16. Benefits. This Agreement shall be binding upon and inure to the benefit
of the parties hereto. This Agreement is for the sole benefit of the parties
hereto and not for the benefit of any other party.
17. Severability. If any provision of this Agreement shall be determined to
be illegal and unenforceable by any court of law, the remaining provisions shall
be severable and enforceable in accordance with their terms.
18. Amendments. No modification, amendment or waiver or any provision of
this Agreement shall be effective unless it is in writing and signed by the
parties hereto.
19. Counterparts. This Agreement may be executed in counterparts, each of
which shall constitute one and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
the Chief Executive Officer, and Grantee has executed this Agreement, both as of
the day and year first above written.
NETGATEWAY, INC.
By: /s/ Roy W. Camblin, III
-----------------------
Roy W. Camblin, III
Chief Executive Officer
/s/ David Bassett-Parkins
- ----------------------------
David Bassett-Parkins
4
<PAGE>
NIDA & MALONEY
A L I M I T E D L I A B I L I T Y P A R T N E R S H I P
ATTORNEYS AT LAW
800 Anacapa Street
Santa Barbara, California 93101
PHONE 805-568-1151
FAX 805-568-1955
January 21, 2000
NETGATEWAY, INC.
300 Oceangate, 5th Floor
Long Beach, California 90802
Attn: Craig S. Gatarz, Esq.
General Counsel
Re: NETGATEWAY, INC. - Registration Statement on Form S-8
-----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for NETGATEWAY, INC., a Delaware corporation (the
"Company"), in connection with the preparation of a registration statement on
Form S-8 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), to be filed with the Securities and Exchange
Commission (the "Commission") on January 21, 2000, in connection with the
registration of an aggregate of 9,877,002 shares of the Company's Common Stock,
par value $.001 per share (collectively, the "Shares") (subject to adjustment
pursuant to Rule 416 under the Exchange Act), issued or issuable under certain
of the Company's stock option plans and individual employee stock awards
identified therein (the "Plans").
In connection with the preparation of the Registration Statement and the
proposed issuance and sale of the Shares in accordance with the Plans, the Form
S-8 prospectus to be delivered to participants in the Plans and the Form S-3
refoffer prospectus contained in the Registration Statement, we have made
certain legal and factual examinations and inquiries and examined, among other
things, such documents, records, instruments, agreements, certificates and
matters as we have considered appropriate and necessary for the rendering of
this opinion. We have assumed for the purpose of this opinion the authenticity
of all documents submitted to us as originals and the conformity with the
originals of all documents submitted to us as copies, and the genuineness of the
signatures thereon. As to various questions of fact material to this opinion, we
have, when relevant facts were not independently established, relied, to the
extent deemed proper by us, upon certificates and statements of officers and
representatives of the Company.
Based on the foregoing and in reliance thereon, it is our opinion that the
Shares have been duly authorized, and, to the extent and when issued and sold in
accordance with the Plans and the prospectus delivered or to be delivered to
participants in the Plans, the Shares are or will be validly issued, fully paid
and nonassessable.
On the basis of the foregoing, we are of the further opinion that the
provisions of the written documents constituting the Plans comply with the
requirements of ERISA pertaining to such provisions.
We hereby consent to the inclusion of our opinion as Exhibit 5.1 to the
Registration Statement and further consent to the reference to this firm in the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
<PAGE>
NIDA & MALONEY, LLP
Netgateway, Inc.
January 21, 2000
Page Two
This opinion is rendered solely for your benefit in accordance with the
subject transaction and is not to be otherwise used, circulated, quoted or
referred to without our prior written consent. We are opining herein only as to
the Delaware General Corporation Law, and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
Very truly yours,
/S/ NIDA & MALONEY, LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
To Board of Directors
Netgateway, Inc.
We consent to the incorporation by reference in the Registration Statement
on Form S-8 of Netgateway, Inc. of our report dated August 23, 1999 relating to
the consolidated balance sheets of Netgateway, Inc. and subsidiaries as of June
30, 1998 and 1999 and the related consolidated statements of operations, changes
in shareholders' deficit and cash flows for the year ended June 30,1999, the
period March 4, 1998 (inception) through June 30,1998 and the cumulative period
March 4, 1998 (inception) through June 30,1999, which report appears in the
Registration Statement on Form S-1 of Netgateway, Inc., dated November 18, 1999.
Our report dated August 23, 1999, contains an explanatory paragraph that
states that the Company's planned principal operations have commenced, however,
minimal revenues have been generated. Additionally, the Company continues to
incur net losses and has continuing financial needs. These matters raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ KPMG LLP
Los Angeles, California
January 21, 2000
