<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31,1999.
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______to _______ Commission file Number:________
Netgateway, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 87-0591719
-------------- -------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Oceangate, 5th Floor, Long Beach, California 90802
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(Address of principal executive offices) (Zip Code)
(562)308-0010
----------------------------
(Registrant's telephone number, including area code)
----------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No_____
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 16,954,464 shares of
common stock as of February 11, 2000
- --------------------------------------------------------------------------------
When we refer in this Form 10Q to "Netgateway," "the Company," "we,"
"our," and "us," we mean Netgateway, Inc., a Delaware corporation, together with
our subsidiaries and their respective predecessors.
- --------------------------------------------------------------------------------
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Condensed Consolidated Balance Sheets at December 31, 1999 and at June 30, 1999...............F-1
Condensed Consolidated Statements of Operations for the three and six months ended
December 31, 1999 and 1998....................................................................F-2
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 1999
and 1998......................................................................................F-3
Condensed Consolidated Statements of Changes in Shareholders' Equity..........................F-4
Notes to the Condensed Consolidated Financial Statements..................................... F-5
</TABLE>
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
December 31, 1999 and June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
-------------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 13,119,848 569,472
Accounts receivable less allowance for doubtful accounts of $600
and $3,000 at December 31, 1999 and June 30, 1999, respectively 464,375 44,198
Unbilled receivables 307,678 --
Note receivable from officer (note 4) -- 30,000
Debt issue costs -- 336,288
Prepaid offering costs -- 325,887
Prepaid advertising 300,000 --
Prepaid expenses and other current assets 659,151 73,481
------------ -----------
Total current assets 14,851,052 1,379,326
Property and equipment, net 1,598,683 496,536
Intangible assets, net 1,403,248 1,562,635
Other assets 27,284 19,853
------------ -----------
$ 17,880,267 3,458,350
============ ===========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of notes payable (note 5) $ -- 1,496,000
Convertible debentures (note 5) -- 200,000
Accounts payable 1,161,453 278,723
Accrued wages and benefits 759,403 278,741
Accrued interest 3,708 44,301
Accrued liabilities 646,990 543,632
Deferred revenue 36,392 67,694
Accrued contract losses -- 302,543
Current portion of notes payable to related parties -- 1,799
------------ -----------
Total current liabilities 2,607,946 3,213,433
Shareholders' equity (note 8):
Common stock, par value $.001 per share. Authorized
40,000,000 shares; issued and outstanding 16,956,778 and
9,912,304 at December 31, 1999 and June 30, 1999, respectively 16,957 9,913
Additional paid-in capital 54,291,536 15,639,160
Deferred compensation (505,909) (52,919)
Accumulated other comprehensive loss (4,160) (3,598)
Accumulated deficit (38,526,103) (15,347,639)
------------ -----------
Total shareholders' equity 15,272,321 244,917
Commitments and subsequent events (note 7)
------------- ----------
Total liabilities and shareholders' equity $ 17,880,267 3,458,350
============= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-1
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
-------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service revenue (note 3) $ 924,921 18,614 1,172,681 80,184
Operating expenses:
Depreciation and amortization 181,208 24,355 313,913 47,380
Selling, general and administrative 16,550,141 3,532,170 19,269,200 5,287,318
------------- --------- ---------- ---------
Total operating expenses 16,731,349 3,556,525 19,583,113 5,334,698
------------- --------- ---------- ---------
Loss from operations (15,806,428) (3,537,911) (18,410,432) (5,254,514)
Loss on sale of equity securities -- -- -- 54,729
Interest (income) expense, net 3,738,220 15,110 4,768,032 (17,970)
------------- --------- ---------- ---------
Net loss before extraordinary item (19,544,648) (3,553,021) (23,178,464) (5,291,273)
============= ========= ========== =========
Extraordinary gain on debt extinguishment -- 1,653,233 -- 1,653,233
============= ========= ========== =========
Net loss $ (19,544,648) (1,899,788) (23,178,464) (3,638,040)
============= ========= ========== =========
Basic and diluted extraordinary
gain per share $ -- 0.19 -- 0.20
============= ========= ========== =========
Basic and diluted loss per share $ (1.44) (0.22) (1.96) (0.43)
============= ========= ========== =========
Weighted average common shares outstanding -
basic and diluted 13,606,846 8,667,252 11,819,559 8,453,939
============= ========= ========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-2
<PAGE>
NET GATEWAY, INC. AND SUBSIDIARY
Unaudited Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months Six months
ended ended
December 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (23,178,464) (3,638,040)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 313,913 47,380
Common stock issued for services 3,389,400 725,000
Loss on sale of equity securities -- 54,729
Amortization of deferred compensation 230,533 76,760
Gain on extinguishment of debt -- (1,653,232)
Stock compensation paid by shareholders -- 400,000
Stock issued in exchange for cancellation of options 8,400,000 --
Amortization of debt issue costs 585,592 --
Amortization of debt discount 4,022,550 35,488
Options and warrants issued for services 172,853 1,596,191
Provision for doubtful accounts -- 10,886
Write-off of note receivable -- 800,000
Changes in assets and liabilities:
Accounts receivable (420,177) (4,931)
Unbilled receivables (307,678) --
Other assets (266,464) 28,386
Accounts payable and accrued expenses 1,145,846 477,344
------------- ----------
Net cash used in operating activities (5,912,096) (1,044,039)
------------- ----------
Cash flows from investing activities:
Loan for notes receivable -- (800,000)
Repayment of notes receivable 30,000 50,000
Purchase of equity securities -- (100,733)
Proceeds from sale of equity securities -- 46,004
Purchase of property and equipment (1,256,673) (33,768)
------------- ----------
Net cash used in investing activities (1,226,673) (838,497)
------------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net 25,314,234 1,932,800
Proceeds from exercise of warrants -- 231,000
Repayment of notes payable (6,633,500) --
Proceeds from issuance of notes payable and
convertible debentures 1,114,950 195,000
Cash paid for debt issue costs (104,178) --
Repayment of notes payable to related parties (1,799) (730,630)
------------- ----------
Net cash provided by financing activities 19,689,707 1,628,170
------------- ----------
Net increase in cash 12,550,938 (254,366)
Cash at beginning of period 569,472 254,597
Effect of exchange rate changes on cash balances (562) --
------------- ----------
Cash at end of period $ 13,119,848 231
============= ==========
Supplemental schedule of noncash activities:
Conversion of debt to common stock $ 200,000 --
Common stock issued for prepaid advertising 300,000 --
Capital contributed upon extinguishment of debt -- 200,000
Warrants issued to settle an obligation 53,534 --
Warrants issued for debt issue costs 145,876 --
============= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-3
<PAGE>
NETGATEWAY INC. AND SUBSDIARY
Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Common stock
-------------------------- Additional Deferred Comprehensive
Shares Amount paid-in capital Compensation Loss
------------ ---------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999 9,912,304 $ 9,913 15,639,160 (52,919)
Common stock issued for prepaid advertising 50,000 50 299,950 -- --
Common stock issued for services 502,400 502 3,388,898 -- --
Warrants issued for services -- -- 53,534 -- --
Sale of common stock for cash, net 4,155,350 4,156 25,455,584 -- --
Shares issued for debenture conversion 80,000 80 199,920 -- --
Options granted for services -- -- 172,853 -- --
Stock option compensation -- -- 683,523 (683,523) --
Amortization of deferred compensation -- -- -- 230,533 --
Exercise of warrants 370 -- 370 -- --
Cashless exercise of options and warrants 969,810 969 (969) -- --
Shares issued for cancellation of options 1,200,000 1,200 8,398,800 -- --
Shares issued upon conversion of subsidiary
common stock 86,544 87 (87) -- --
Comprehensive loss:
Net loss -- -- -- -- (23,178,464)
Foreign currency translation adjustment -- -- -- -- (562)
------------
(23,179,026)
============
Total comprehensive loss
---------- ------- ------------ ---------
Balance at December 31, 1999 16,956,778 $16,957 54,291,536 (505,909)
========== ======= ============ =========
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive shareholders'
Deficit Loss equity
-------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1999 (15,347,639) (3,598) 244,917
Common stock issued for prepaid advertising -- -- 300,000
Common stock issued for services -- -- 3,389,400
Warrants issued for services -- -- 53,534
Sale of common stock for cash, net -- -- 25,459,740
Shares issued for debenture conversion -- -- 200,000
Options granted for services -- -- 172,853
Stock option compensation -- -- --
Amortization of deferred compensation -- -- 230,533
Exercise of warrants -- -- 370
Cashless exercise of options and warrants -- -- --
Shares issued for cancellation of options -- -- 8,400,000
Shares issued upon conversion of subsidiary
common stock -- -- --
Comprehensive loss:
Net loss (23,178,464) -- (23,178,464)
Foreign currency translation adjustment -- (562) (562)
Total comprehensive loss
------------ ------- ------------
Balance at December 31, 1999 (38,526,103) (4,160) 15,272,321
============ ======= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-4
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements
(1) Description of Business
Netgateway, Inc. and subsidiary ("Netgateway" to the "Company"), was formed
on March 4, 1998 as a Nevada corporation. Netgateway is an internet commerce
and connectivity company which provides turn-key solutions designed to
enable companies of any size to extend their business to the internet for a
wide variety of purposes, including the advertising and sale of products or
services by retailers and the conduct of commercial transactions between
business enterprises.
Prior to October 1, 1999, the Company was a development stage enterprise as
defined in Statement of Financial Accounting Standards ("SFAS") No. 7.
Planned principal operations commenced and began producing significant
revenue on October 1, 1999, and accordingly, Netgateway is no longer
considered a development stage company.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Revenue Recognition
Revenues from the design and development of internet web sites and
related consulting projects are recognized using the
percentage-of-completion method. Unbilled receivables represent time
and costs incurred on projects in progress in excess of amounts billed,
and are recorded as assets. Deferred revenue represents amounts billed
in excess of costs incurred, and is recorded as a liability. To the
extent costs incurred and anticipated costs to complete projects in
progress exceed anticipated billings, a loss is recognized in the
period such determination is made for the excess.
(c) Business Segments and Related Information
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131) establishes standards for the way
public business enterprises are to report information about operating
segments in annual financial statements and requires enterprises to
report selected information about operating segments in interim
F-5
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements (Continued)
financial reports issued to shareholders. It also establishes standards
for related disclosure about products and services, geographic areas
and major customers. It replaces the "industry segment" concept of SFAS
No. 14, "Financial Reporting for Segments of a Business Enterprise,"
with a "management approach" concept as the basis for identifying
reportable segments. The Company has only one operating segment. The
Company formed its wholly-owned Canadian subsidiary, StoresOnline.com,
Ltd., in January 1999. Prior to that time, the Company only had
operations in the United States. All revenues during the three and six
months ended December 31, 1999 and 1998 were generated in the United
States. Substantially all of the Company's long-lived assets were
located in the United States at December 31, 1999.
(d) Investment Securities
The Company accounts for investment securities in accordance with
Financial Accounting Standards Board Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115
requires investments to be classified based on management's intent in
one of the three categories: held-to-maturity securities,
available-for-sale securities and trading securities. Held-to-maturity
securities are recorded at amortized cost. Available-for-sale
securities are recorded at fair value with unrealized gains and losses
reported as a separate component of shareholders' equity and
comprehensive income (loss). Trading securities are recorded at market
value with unrealized gains and losses reported in operations. The
Company's investment securities have been classified as
available-for-sale.
(e) Foreign Currency Translation
The financial statements of the Company's Canadian subsidiary,
StoresOnline.com, Ltd. have been translated into U.S. dollars from its
functional currency in the accompanying consolidated financial
statements in accordance with Statement of Financial Accounting
Standards No. 52, "Foreign Currency Translation." Balance sheet
accounts of StoresOnline.com, Ltd. are translated at period-end
exchange rates while income and expenses are translated at actual
exchange rates on the date of the transaction. Translation gains or
losses that related to StoresOnline.com, Ltd.'s net assets are shown as
a separate component of shareholders' equity and comprehensive income
(loss). There were no gains or losses resulting from realized foreign
currency transactions (transactions denominated in a currency other
than the entities' functional currency) during the three and six months
ended December 31, 1999 and 1998.
F-6
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements (Continued)
(f) Loss Per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common shareholders by the weighted average number
of common shares outstanding during the period in accordance with SFAS
No. 128 "Earnings Per Share". Diluted earnings (loss) per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the earnings of the entity. Diluted earnings (loss) per share is
computed similarly to fully diluted earnings (loss) per share pursuant
to Accounting Principles Board (APB) Opinion No. 15. There were
2,654,873 options and 1,366,375 warrants to purchase shares of common
stock that were outstanding during the three and six months ended
December 31, 1999 which were not included in the computation of diluted
loss per share because the impact would have been antidilutive. There
were 2,575,936 options and 1,150,000 warrants to purchase shares of
common stock that were outstanding during the three and six months
ended December 31, 1998 which were not included in the computation of
diluted loss per share because the impact would have been antidilutive.
(g) Costs of Start-Up Activities
Pursuant to AICPA Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities," the Company expenses all the costs of
start-up activities as incurred.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the balance sheet
date and the reporting of revenues and expenses during the reporting
periods to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
(i) Reclassifications
Certain amounts have been reclassified to conform with current year
presentation.
(3) Change in Method of Accounting for Revenue
Effective October 1, 1999, the Company changed its method of accounting for
revenue from the completed contract method to the percentage-of-completion
method. The Company believes the percentage of completion method more accurately
reflects the current earnings process under the Company's contracts. The
percentage of completion method is preferable according to Statement of Position
F-7
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements (Continued)
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts, issued by the American Institute of Certified Public
Accountants. The new method has been applied retroactively by restating the
Company's consolidated financial statements for prior periods in accordance with
Accounting Principles Board Opinion No. 20.
The impact of the accounting change was a decrease in net loss and loss per
share as follows:
Net Loss Loss per Share
------------ ---------------
Three months ended December 31, 1999 $ 549,272 .04
Six months ended December 31, 1999 584,298 .05
Three months ended December 31, 1998 -- --
Six months ended December 31, 1998 -- --
(4) Notes Receivable and Notes Receivable from Officer
During the period March 4, 1998 (inception) through June 30, 1998, the Company
issued a $50,000 note receivable to a customer which was repaid during the six
months ended December 31, 1998. In July 1998 and August 1998, the Company
advanced $800,000 to an entity with which the Company was in merger discussions.
Certain Company officers and directors were minor shareholders of the potential
merger entity. The merger was not consummated and the advance was deemed
uncollectible and written-off during the three months ended September 30, 1998.
During June 1999, the Company issued its chief executive officer, Keith
Freadhoff, a non-interest bearing $30,000 note receivable. The note was repaid
in July 1999.
(5) Notes Payable and Convertible Debentures
In August and September 1999, the Company obtained bridge financing whereby 12%
senior notes payable and 357,850 shares of common stock were issued generating
proceeds of $2,744,290, net of $803,612 of issuance costs. The senior notes
payable are due the earlier of April 30, 2000 or upon the close of a public sale
of the Company's common stock. The Company also granted 149,375 warrants to
purchase an equivalent number of shares of common stock at an exercise price of
$10 per share as additional issuance costs. The warrants are exercisable for a
period of four years commencing May 18, 2000. The fair value of the warrants on
the dates of issuance was estimated to be $469,402 using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rate of 5%; volatility of 100% and an expected life of 2
years. The net proceeds from the bridge financing were allocated to the senior
notes payable and common stock based on their relative fair values. Accordingly,
$957,450 was recorded as notes payable, $2,035,140 as equity, net of $555,313 of
stock issuance costs, and $248,299 as debt issuance costs.
F-8
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements (Continued)
In September 1999, the Company issued a 12% senior note payable of $500,000 and
50,000 shares of common stock valued at $350,000 stock, the proceeds of which
were received in October 1999. The note is due the earlier of April 30, 2000 or
upon the close of a public sale of the Company's common stock. In October 1999,
the Company issued a 12% senior note payable of $25,000 and 2,500 shares of
common stock valued at $17,500 generating net proceeds of $22,500. The note is
due the earlier of April 30, 2000 or upon the close of a public sale of the
Company's common stock. The Company also granted 1,250 warrants valued at
$3,349. The net proceeds were allocated to the senior notes payable and common
stock based on their relative fair value.
In November 1999, the Company repaid all of the $6,633,500 12% senior notes
payable. Upon repayment of the senior notes, the remaining debt discount balance
of $3,253,469 was recognized as interest expense.
In October and November 1999, $200,000 of convertible debentures were converted
into 80,000 shares of common stock.
(6) Shareholders' Equity
In July 1999, the Board of Directors adopted the 1999 Stock Option Plan for
Non-Executives. An aggregate of 2,000,000 shares were reserved for issuance
under the Plan. During the six months ended December 31, 1999, the Company
granted 1,119,682 options under the Plan at exercise prices ranging from $3.50
to $12.50 per share. The Company also granted 285,714 options under the 1998
Executive Plan during the six months ended December 31, 1999 at exercise prices
ranging from $3.50 to $8.18 per share. The Company also granted 123,916 options
under the 1998 Employee Stock Option Plan during the six months ended December
31, 1999 at exercise prices ranging from $3.50 to $4.19 per share.
In July 1999, the Company entered into a Cable Reseller and Mall agreement with
MediaOne of Colorado, Inc. (MediaOne) whereby the Company also issued to
MediaOne 50,000 shares of common stock and warrants to purchase 200,000 shares
of common stock. The exercise price of the warrants is dependent upon the market
price of the Company's common stock on the date that the warrants are earned
under certain performance criteria. As of December 31, 1999, the performance
criteria had not been met.
During the six months ended December 31, 1999, the Company issued 502,400 shares
of common stock valued at $3,389,400 for services, of which 500,000 shares were
issued to the CEO of the Company.
In October, the Company issued 969,810 shares of common stock upon the cashless
exercise of warrants, 100 shares of common stock upon the exercise of warrants
for $100, 1,200,000 shares of common stock valued at $8,400,000 to three
executives upon the cancellation of 1,980,000 options, and 8,000 shares of
common stock upon the conversion of $20,000 of convertible debentures. In
November 1999, the Company issued 270 shares of common stock upon the exercise
of warrants for $270.
F-9
<PAGE>
NETGATEWAY, INC. AND SUBSIDIARY
Unaudited Notes to Condensed Consolidated Financial Statements (Continued)
In November and December 1999, the Company sold 3,795,000 shares of common stock
in a public offering generating net proceeds of $23,057,844. The Company also
granted 190,250 warrants as stock issuance costs.
In December 1999, the Company issued 86,544 shares of common stock upon the
conversion of common stock of its Storesonline.com subsidiary.
(7) Subsequent Events
In December 1999, the Company signed a letter of intent to acquire Galaxy
Enterprises, Inc. ("Galaxy Enterprises"). Under the terms of the letter of
intent, we will acquire Galaxy Enterprises in an all-stock merger by issuing to
Galaxy Enterprises's stockholders approximately 5 million shares of Netgateway
with a value of approximately $50 million. Among other things, Galaxy
Enterprises, through its subsidiary Galaxy Mall, Inc., engages in the business
of selling electronic home pages, or "storefronts" on its Internet shopping
mall, and hosts those storefront sites on its Internet server. Galaxy
Enterprises also conducts Internet training seminars throughout the United
States for its customers and for others interestd in extending their businesses
to the Internet.
In connection with the proposed merger, on January 7, 2000, the Company advanced
$300,000 in bridge financing to Galaxy Enterprises for working capital purposes
and for the payment of certain professional fees incurred by Galaxy Enterprises
in connection with the merger. On February 4, 2000, the Company advanced an
additional $150,000 to Galaxy Enterprises for working capital purposes and for
the payment of certain professional fees incurred by Galaxy Enterprises in
connection with the merger. Each loan is secured by a pledge of Galaxy
Enterprises common stock from John J. Poelman, the chief executive officer and
largest shareholder of Galaxy Enterprises. The notes bear interest at 9.5% and
are due and payable on the earlier of April 30, 2000 or the consummation date of
the acquisition.
F-10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. This Act provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact that
we make in this Form 10Q are forward looking. In particular, statements herein
regarding our future results of operations or financial position are
forward-looking statements. Forward-looking statements reflecting our current
expectations are inherently uncertain. Our actual results may differ
significantly from our expectations. Factors that may cause such differences
include, but are not limited to, those discussed under the heading "Risk
Factors" in our Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission (the "SEC") on June 1, 1999, amended by Amendment No. 1
filed with the SEC on July 21, 1999, amended by Amendment No. 2 filed with the
SEC on October 14, 1999, amended by Amendment No. 3 filed with the SEC on
November 12, 1999 and amended by Amendment No. 4 filed with the SEC on November
17, 1999 (Registration No. 333-79571), and elsewhere in this report. This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our financial statements and the
related notes included elsewhere herein.
General
We provide turn-key electronic commerce services designed to enable clients to
extend their business to the Internet to conduct commercial transactions between
business enterprises. The hub of our electronic commerce solution is our
proprietary Internet Commerce Center "ICC", which consists of the hardware,
proprietary and licensed software, and the related technical services necessary
for our clients to transact electronic commerce, known in our industry as
eCommerce. We also design and build custom interfaces, or spokes, to connect
business clients to the ICC. Our ICC provides our clients a continuum of
increasingly sophisticated and technologically complex solutions, ranging from a
simple internet storefront advertising their products and taking orders through
e-mail to a highly complex system of private websites, known as extranets. These
extranets are accessible only by clients and selected outsiders, such as our
customers, suppliers, and vendors, to interact and transact business-to-business
electronic commerce.
Prior to October 1, 1999, we were a development stage enterprise as defined in
Statement of Financial Accounting Standards ("SFAS") No. 7. Planned principal
operations commenced and began producing significant revenue on October 1, 1999,
and accordingly, we are no longer considered a development stage company.
<PAGE>
Effective October 1, 1999, we changed our method of accounting for revenue from
the completed contract method to the percentage-of-completion method. We believe
that the percentage of completion method more accurately reflects the current
earnings process under the Company's contracts. The percentage of completion
method is preferable according to Statement of Position 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts, issued
by the American Institute of Certified Public Accountants. The new method has
been applied retroactively by restating our consolidated financial statements
for prior periods in accordance with Accounting Principles Board Opinion No. 20.
Results of Operations
Revenue
Service revenue includes revenues related to web site development and the design
of electronic storefronts, internet-based shopping mall development and design,
and transaction processing. Service revenues for the three and six month periods
ended December 31, 1999 increased to $924,921 and $1,172,681, respectively, from
$18,614 and $80,184 in the comparable prior periods. The growth in service
revenues was attributable primarily to the addition of several new customers to
our ICC. In addition, our average price for system development has increased as
the scope and technical requirements of our customers utilizing the ICC has
increased.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of payroll and related
expenses for executive, sales, marketing, accounting and administrative
personnel, recruiting, professional fees, research and development and other
general corporate expenses. Selling, general and administrative expenses for the
three and six month periods ended December 31, 1999 increased to $16,550,141 and
$19,269,200, respectively, from $3,532,170 and $5,287,318 in the comparable
prior periods. The increase in selling, general and administrative expenses is
attributable primarily to non-cash compensation from common stock issued to
executives during the three months ended December 31,1999 valued at $11,775,000.
The increases in selling, general and administrative expenses are also
attributable to increased payroll-related and other infrastructure costs as we
expand and incur additional costs related to the growth of our business.
Interest (Income) Expense, Net
Interest expense consists primarily of amortization of debt issuance costs and
debt discount and interest in connection with our $1,000,000 of Secured
Convertible Debentures due December 31,1999 (the "Convertible Debentures"), and
$6,633,500 of our Series A 12% Senior Notes (the "Senior Notes"). The Senior
Notes were issued in connection with our May through October 1999 bridge
financing private placements (the "Bridge Financing"). Interest (income)
expense, net for the three and six month periods ended December 31, 1999,
increased to $3,738,220 and $4,768,032, respectively, from $15,110 and $(17,970)
in the comparable prior periods. The increase in interest expense is
attributable primarily to the amortization of promissory note discounts incurred
in conjunction with the Bridge Financing. The amortization of the debt discount
aggregated $3,587,853 and $4,356,934 during the three and six-month periods
ended December 31, 1999, respectively. All of the Convertible Debentures were
converted into common stock as of December 31, 1999. The Senior Notes were
repaid in full in November 1999.
<PAGE>
Income Taxes
We have not generated any taxable income to date and therefore have not paid any
federal income taxes since our inception. Utilization of our net operating loss
carry forwards, which begin to expire in 2013, may be subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986, as amended.
Liquidity and Capital Resources
At December 31, 1999, the Company had $13,119,848 in cash on hand, an increase
of $12,550,376 from June 30, 1999.
Net cash used in operating activities was $5,577,712 for the six-month period
ended December 31, 1999. Net cash used in operations was primarily attributable
to $23,178,464 in net losses and increases in assets, partially offset by
non-cash charges as well as increases in accounts payable and accrued expenses.
Increases in assets included $420,177 in accounts receivable and $307,678 in
unbilled receivables resulting from the growth in revenues. Non-cash charges
include $3,389,000 for common stock issued for services, $8,400,000 for stock
issued for cancellation of options and $4,022,550 from the amortization of debt
discount. Accounts payable and accrued expenses increased $1,145,846 and
resulted primarily from the accrual of mid-year bonuses to our employees and
balances owed on capital expenditures.
Net cash used in investing activities was $1,226,673 for the six months ended
December 31, 1999 and consisted primarily of purchases of property and equipment
for the upgrade of our technological infrastructure.
Net cash provided by financing activities of $19,355,323 for the six-month
period ended December 31, 1999 resulted primarily from $1,114,950 in proceeds
from the issuance of Senior Notes and $25,314,234 in proceeds from the issuance
of common stock in connection with our secondary offering, which we completed in
November and December 1999. These proceeds were partially offset by $6,633,500
used to repay the Bridge Financing loans in their entirety.
We believe that our existing capital resources are adequate to meet its cash
requirements for at least the next ten months. We anticipate that we will incur
additional capital expenditures spending during the third and fourth quarters of
our fiscal year to continue upgrading the technological infrastructure.
<PAGE>
Recent Events
In December 1999, the Company signed a letter of intent to acquire Galaxy
Enterprises, Inc. ("Galaxy Enterprises"). Under the terms of the letter of
intent, we will acquire Galaxy Enterprises in an all-stock merger by issuing to
Galaxy Enterprise's stockholders approximately 5 million shares of Netgateway
with a value of approximately $50 million. Among other things, Galaxy
Enterprises, through its subsidiary, Galaxy Mall, Inc., engages in the business
of selling electronic home pages, or "storefronts" on its Internet shopping
mall, and hosts those storefront sites on its Internet server. Galaxy
Enterprises also conducts Internet training seminars throughout the United
States for its customers and for others interested in extending their businesses
to the Internet.
In connection with the proposed merger, on January 7, 2000, the Company advanced
$300,000 in bridge financing to Galaxy Enterprises for working capital purposes
and for the payment of certain professional fees incurred by Galaxy Enterprises
in connection with the merger. On February 4, 2000, the Company advanced an
additional $150,000 to Galaxy Enterprises for working capital purposes and for
the payment of certain professional fees incurred by Galaxy Enterprises in
connection with the merger. Each loan is secured by a pledge of Galaxy
Enterprises common stock from John J. Poelman, the chief executive officer and
largest shareholder of Galaxy Enterprises.
In December 1999, the Company reached an agreement with Leading Technologies
Inc.,d/b/a Mall of Minority America.com, Inc. to develop, manage, and service
Leading Technologies Inc.'s Internet-based shopping mall and client extranet.
In January 2000, the Company reached an agreement with Intermedia Partners
Southeast, an affiliate of AT&T Media Services, to launch a local electronic
shopping portal in Nashville, Tennessee. Pursuant to this agreement, the Company
will design and develop an Internet-based shopping mall, to be branded with the
Intermedia's name, brand and image, and will offer its storefront building and
maintenance services to Intermedia's subscribers. The Company will also be
responsible for marketing support, including development of mall content,
training of Intermedia's sales people, development of Intermedia's branded
collateral material and periodic distribution and updating of advertising spots
to promote online shopping mall and storebuilding services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
None.
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The proceeds from the offering of 3,795,000 shares of our common stock
have been used to repay $6,633,500 of indebtedness incurred in
connection with our May through September 1999 private placements of
Series A 12% Senior Notes due 2000. Additionally approximately $830,000
was used to upgrade our technological infrastructure. The remainder of
the proceeds is being used to fund operations and continue to develop
the infrastructure necessary to support the growth of our business. As
of December 31, 1999 we had $13,119,848 of the proceeds from the
offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The documents required to be filed as exhibits to this report under
Item 601 of Regulation S-K are listed in the Exhibit Index included elsewhere in
this report, which list is incorporated herein by reference.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NETGATEWAY, INC.
Date: February 14, 2000 /s/ Roy W. Camblin
----------------------------------
Name: Roy W. Camblin III
Title: Chief Executive Officer
Date: February 14, 2000 /s/ Donald M. Corliss Jr.
----------------------------------
Name: Donald M. Corliss Jr.
Title: President
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Letter of Intent, dated December 12, 1999 between Galaxy Enterprises, Inc., a Nevada corporation
and the Company
10.2R Electronic Commerce Services Agreement, dated as of December 1, 1999, between Netgateway and
Leading Technologies, Inc. d/b/a Mall of Minority America.com, Inc.
10.3R Cable Reseller and Mall Agreement, dated as of December 9, 1999, among Netgateway,
StoresOnline.com, Inc. and Intermedia Partners Southeast
10.4 Pledge Agreement, dated as of January 7, 2000, between John J. Poelman and the Company
10.5 Promissory Note in the principal amount of $300,000, dated January 7, 2000 issued to the Company
10.6 Pledge Agreement, dated as of February 4, 2000, between John J. Poelman and the Company
10.7 Promissory Note in the principal amount of $150,000, dated February 4, 2000 issued to the Company
10.8 Employment Agreement, dated as of December 15, 1999, between Jill Padwa and the Company
18.1 Letter dated February 9, 2000 from KPMG LLP
</TABLE>
Please note that certain confidential technical and commercial information has
been redacted from some of the exhibits attached to this Form 10-Q in order to
preserve the confidentiality of such information. All of the confidential
information which has been redacted is on file with the Securities and Exchange
Commission and may be obtained in accordance with the Freedom of Information
Act. Exhibits to this Form 10-Q which have had confidential information redacted
are indicated as follows on the exhibit list above: "R" Within the exhibits to
this Form 10-Q, redacted material is indicated by the following sign where such
redacted text would have appeared in the relevant exhibit: "[**REDACTED**]"
<PAGE>
Exhibit 10.1
CONFIDENTIAL LETTER OF INTENT
December 12, 1999
Galaxy Enterprises, Inc.
754 East Technology Avenue
Orem, Utah 84907
Re: Acquisition of Capital
Stock of Galaxy Enterprises, Inc.
---------------------------------
Ladies and Gentlemen:
The purpose of this binding letter (the "Letter of Intent") is to set
forth an understanding between and among Galaxy Enterprises, Inc., a Nevada
corporation (the "Prospective Seller"), and Netgateway, Inc., a Delaware
corporation (the "Prospective Buyer"), with respect to the possible acquisition
of all of the issued and outstanding capital stock (the "Capital Stock") of
Prospective Seller (the "Transaction"). Prospective Seller has two wholly owned
subsidiaries (collectively, the "Subsidiaries"), Galaxy Mall, Inc., a Wyoming
corporation, and IMI, Inc., a Utah corporation. The parties intend to structure
the Transaction as a merger with Prospective Seller merging with and into a
newly formed, wholly owned subsidiary of Prospective Buyer ("Merger Sub").
Until a fully integrated, definitive agreement (the "Merger Agreement")
and other related documents have been prepared, authorized, executed and
delivered by and between all parties, this Letter of Intent shall bind both
parties to such an extent as stated herein unless terminated in compliance with
Section 17 below.
1. Basic Transaction. The Prospective Seller will merger with
and into Merger Sub with Prospective Buyer issuing five (5) million shares,
subject to adjustment, of its common stock, registered on Form S-4 (or such
other appropriate form), to the stockholders of Prospective Seller. The parties
intend to execute the Merger Agreement by December 20, 1999 and to close the
Transaction as soon as possible thereafter, but in no event later than March 31,
2000 (the "Closing Date"). The Closing Date may be extended by the mutual
consent of the Prospective Seller and the Prospective Buyer.
1
<PAGE>
2. Proposed Purchase Price. Based upon the information known
to the Prospective Buyer on the date hereof, the Prospective Buyer will issue
five (5) million shares of its common stock, registered on Form S-4 (or such
other appropriate form), subject to adjustment as set forth below in this
Section 2 (collectively, the "Purchase Price"). If the Closing Price of the
Prospective Buyer's common stock on the date the Merger Agreement is executed is
in excess of $10.00 per share or less than $4.00 per share, then the parties
shall negotiate an adjustment of the Purchase Price in good faith. For purposes
hereof, "Closing Price" shall mean the average of the last sale price of
Prospective Buyer's stock as reported on the NASDAQ National Market for the
twenty trading days prior to the date of the Merger Agreement. The Merger
Agreement shall include a customary escrow mechanism, the terms of which shall
be acceptable to the Prospective Seller and Prospective Buyer, that will (a)
entitle the Prospective Buyer to a Purchase Price adjustment for undisclosed
liabilities that are assumed as part of the Transaction; and (b) entitle the
Prospective Seller to a Purchase Price adjustment if, between the date hereof
and the Closing, outstanding shares of Prospective Buyer shall be changed into a
different number of shares by reason of any stock split or similar
recapitalization. Prospective Seller will use reasonable efforts to have its
stockholders execute a lock-up agreement, mutually agreeable to Prospective
Seller, Prospective Buyer and the investment bankers of Prospective Buyer, with
respect to the common stock issuable in payment of the Purchase Price; provided,
however, that it shall be a condition to Closing that all stockholders of
Prospective Seller receiving five percent (5%) or more of such common stock
execute such lock-up agreement. Any stockholders of Prospective Seller that will
hold five percent (5%) or more of the outstanding common stock of Prospective
Buyer as a result of the Transaction shall also be required to execute a
shareholders' agreement requiring such stockholders to vote their shares with
the majority of the stockholders of Prospective Buyer.
3. Due Diligence. The Prospective Buyer shall have a period of
up to fifteen (15) business days commencing on the day after the execution of
this Letter of Intent (the "Due Diligence Period") to conduct an investigation
of the prospects, business, assets, contracts, rights, liabilities and
obligations of the Prospective Seller and the Subsidiaries, including financial,
marketing, employee, legal, regulatory and environmental matters of the
Prospective Seller and the Subsidiaries, to satisfy itself as to the
desirability of proceeding with the Transaction and of the condition of the
Prospective Seller and Subsidiaries, both financial and otherwise. During the
Due Diligence Period, the Prospective Buyer shall have access to the books,
records and all aspects of the business of the Prospective Seller and the
Subsidiaries, all in accordance with the terms of Section 12 hereof. The Due
Diligence Period may be extended by the mutual agreement of the parties.
4. Proposed Form of Agreement. The Prospective Buyer and the
Prospective Seller shall expeditiously negotiate to reach a written Merger
Agreement, subject to the approval of the Prospective Buyer's Board of Directors
and stockholders and the Prospective Seller's Board of Directors and
stockholders, if required by applicable law or any regulatory authority. The
Merger Agreement shall provide for all matters of material concern within the
scope of this Letter of Intent as well as comprehensive representations,
warranties, indemnifications, conditions and agreements by the Prospective
Seller and other appropriate third parties, if any. It is the intent of the
parties hereto that they shall exercise their best efforts to conclude the
Merger Agreement to achieve these objectives. Any conflict or inconsistency
shall be resolved amicably by both parties.
2
<PAGE>
5. Conditions to Transaction. The parties intend to be bound
by this Letter of Intent subject to the execution and delivery of the Merger
Agreement which, if successfully negotiated, would provide that the Transaction
will be subject to customary terms and conditions, including without limitation,
the following:
(a) receipt of all necessary consents and approvals
of governmental bodies, lenders, lessors and other third parties;
(b) absence of any material adverse change in the
Prospective Seller's and the Subsidiaries' business, financial
condition, prospects, assets or operations since September 30, 1999;
(c) absence of pending or threatened litigation
regarding the Merger Agreement or the transactions to be contemplated
thereby;
(d) delivery of customary legal opinions, closing
certificates and other documentation as shall be reasonably requested
by the Prospective Buyer;
(e) execution of the Merger Agreement on terms found
acceptable in the discretion of each party hereto;
(f) receipt of fairness opinions by both parties;
(g) receipt by Prospective Seller of a legal opinion
in form reasonably acceptable to it that the Transaction qualifies as a
tax free reorganization under the provisions of the Internal Revenue
Code of 1986, as amended;
(h) treatment of the Transaction as a
"pooling-of-interests" for accounting purposes; and
(i) approval by the stockholders of Prospective Buyer
and Prospective Seller as required.
6. Proposed Employment Agreements. On the Closing Date,
certain employees of the Prospective Seller and/or the Subsidiaries designated
by the Prospective Buyer would enter into acceptable employment and
non-competition agreements with Prospective Buyer.
3
<PAGE>
7. Expenses. Each of the Prospective Buyer and the Prospective
Seller shall be responsible for and bear all of its own costs and expenses
(including any broker's, finder's, counsel and investment banking fees) incurred
in connection with the Transaction, including expenses of its Representatives
(as defined below) incurred at any time in connection with pursuing or
consummating the Transaction.
8. Exclusivity. For a period of 45 days after this Letter of
Intent is fully executed, the Prospective Buyer shall have a period of
exclusivity, which period shall be extended through the Closing Date in the
event the Merger Agreement is executed. During such period, the Prospective
Seller shall not, directly or indirectly, through any Representative or
otherwise, solicit or entertain offers from, negotiate with or in any manner
encourage, discuss, accept or consider any proposal of any other person relating
to the Transaction, the Prospective Seller or the Subsidiaries, or their assets
or businesses, in whole or in part, whether through direct purchase, merger,
consolidation or other business combination (other than sales of inventory in
the ordinary course).
9. Governing Law. This Letter of Intent, the terms of the
Transaction and all other matters relating to the Transaction (including the
Merger Agreement) will be governed by the laws of the State of California,
U.S.A., without regard to the conflicts of law provisions thereof.
10. Board Approval. This Letter of Intent will be subject to
the approval by the Prospective Buyer's Board of Directors and by the
Prospective Seller's Board of Directors.
11. Merger Agreement. The Prospective Buyer and its counsel
shall be responsible for preparing the initial draft of the Merger Agreement.
The Prospective Buyer and the Prospective Seller shall negotiate in good faith
to arrive at a mutually acceptable Merger Agreement for approval, execution and
delivery on or before December 17, 1999.
12. Access. The Prospective Seller shall provide to the
Prospective Buyer complete access to the Prospective Seller's and the
Subsidiaries' facilities, books and records, and shall cause the directors,
employees, accountants and other agents and representatives (collectively, the
"Representatives") of the Prospective Seller and the Subsidiaries to cooperate
fully with the Prospective Buyer and the Prospective Buyer's Representatives in
connection with the Prospective Buyer's due diligence investigation of the
Prospective Seller, the Subsidiaries and their assets, contracts, liabilities,
operations, records and other aspects of their businesses. The Prospective Buyer
shall be under no obligation to continue with its due diligence investigation or
negotiations regarding the Merger Agreement if, at any time during or after the
Due Diligence Period, the results of its due diligence investigation are not
satisfactory to the Prospective Buyer for any reason in its sole discretion. In
that case, the Prospective Buyer shall give a written notice to the Prospective
Seller of its intent to terminate this Letter of Intent, and the Prospective
Seller shall be under no further obligation with respect to exclusivity under
Section 8.
4
<PAGE>
13. Conduct of Business. Until the Merger Agreement has been
duly executed and delivered by all of the parties or the Letter of Intent has
been terminated pursuant to Section 17 below, the Prospective Seller and its
Subsidiaries shall conduct their business only in the ordinary course, and shall
not engage in any extraordinary transactions, without the Prospective Buyer's
prior consent, including without limitation:
(i) disposing of any of their assets, except in the
ordinary course of business;
(ii) materially increasing the annual level of
compensation of any employee, and increasing the annual level of
compensation of any person whose total compensation in the last
preceding fiscal year exceeded $50,000, and granting any unusual or
extraordinary bonuses, benefits or other forms of direct or indirect
compensation to any employee, officer, director or consultant, except
in amounts in keeping with past practices by formulas or otherwise;
(iii) increasing, terminating, amending or otherwise
modifying any plan for the benefit of employees;
(iv) issuing any equity securities or options,
warrants, rights or convertible securities;
(v) paying any dividends, redeeming any securities or
otherwise causing assets to be distributed to any of their
shareholders, except by way of compensation to employees who are also
shareholders within the limitations set forth in subsection (ii) above;
and
(vi) borrowing any funds, under existing credit lines
or otherwise, except as reasonably necessary for the ordinary operation
their businesses in a manner in keeping with historical practices.
14. Disclosure. The parties hereto shall cooperate with each
other to make a joint disclosure of the existence of discussions regarding a
possible transaction, including the Transaction, between the parties or any of
the terms, conditions or other aspects of the Transaction proposed in this
Letter of Intent as expeditiously as possible and on terms mutually acceptable
to the parties. Except as and to the extent required by law, without the prior
written consent of the other party, neither the Prospective Buyer nor the
Prospective Seller shall, and each shall direct its Representatives not to,
directly or indirectly, make any public comment, statement or communication with
respect to, or otherwise disclose or permit the disclosure of the existence of
discussions regarding a possible transaction, including the Transaction, between
the parties or any of the terms, conditions or other aspects of the Transaction
proposed in this Letter of Intent.
5
<PAGE>
15. Confidentiality. Except as and to the extent required by
law, each party (for purposes of this Section 15, the "first party") agrees that
it shall not disclose or use, and it shall cause its Representatives not to
disclose or use, any Confidential Information (as defined below) with respect to
the other party furnished, or to be furnished, by either the other party or its
Representatives to the first party or the first party's Representatives in
connection herewith at any time or in any manner other than in connection with
its evaluation of the Transaction. For purposes of this Section 15,
"Confidential Information" means any information about the other party provided
hereunder; provided, however, that Confidential Information does not include
information which the first party can demonstrate (i) is generally available to
or known by the public other than as a result of improper disclosure by the
first party or (ii) is obtained by the first party from a source other than the
other party, provided further that such source was not bound by a duty of
confidentiality to the other party or another party with respect to such
information. If this Letter of Intent is terminated pursuant to Section 17
below, the first party shall promptly return to the other party any Confidential
Information in its possession. The parties shall enter into a mutually
acceptable updated confidentiality and non-disclosure agreement concurrent with
the execution and delivery of the Merger Agreement.
16. Consents. The Prospective Buyer and the Prospective Seller
shall cooperate with each other and proceed, as promptly as is reasonably
practicable, to seek to obtain all necessary consents and approvals from any
government or regulating authorities or lenders, landlords or other third
parties, and to endeavor to comply with all other legal or contractual
requirements for or preconditions to the execution and consummation of the
Merger Agreement.
17. Termination. This Letter of Intent may be terminated:
(i) by mutual written consent of the Prospective
Buyer and the Prospective Seller;
(ii) upon written notice by any party to the other
party if the Merger Agreement has not been executed by December 31,
1999;
(iii) by either party when the other party is in
default of this Letter of Intent; or
(iv) at any time by the Prospective Buyer if the
Prospective Buyer shall determine in its sole discretion that the
results of its due diligence investigation are not satisfactory in any
respect.
6
<PAGE>
Upon termination of this Letter of Intent, the parties hereto shall
have no further obligation hereunder, except Sections 14 and 15 above shall
survive such termination.
18. Arbitration. Any and all disputes arising out of or in
connection with the negotiation, execution or interpretation of this Agreement
shall be finally settled by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association by arbitrators
familiar with the electronic commerce and computer software industries. The
arbitration will be held in Los Angeles County, California, on consecutive
business days. The award rendered shall be final and binding upon the parties.
Judgment on any award may be entered in any court having jurisdiction over the
parties or their assets. The costs of the arbitration shall be shared equally by
the parties. Each party will pay its own attorneys' fees and costs in connection
with any arbitration under this Section 18.
This letter supersedes all prior understandings or agreements between
the parties.
Please sign this Letter of Intent in the space provided below to
confirm the mutual agreements set forth herein, and return a signed copy to the
undersigned.
Very truly yours,
NETGATEWAY, INC.,
a Delaware corporation
By: /s/ Donald M. Corliss, Jr.
-----------------------------
Donald M. Corliss, Jr.
President
Acknowledged and agreed as of the foregoing date.
GALAXY ENTERPRISES, INC.
By: /s/ John J. Poelman
--------------------------------
Name: John J. Poelman
Title: Chief Executive Officer
7
<PAGE>
Exhibit 10.2
StoresOnline.com
CABLE RESELLER AND MALL AGREEMENT
(AT&T Media Services - Nashville)
THIS CABLE RESELLER AND MALL AGREEMENT (the "Agreement") is made and
entered into as of the 9th day of December, 1999, between and among
STORESONLINE.COM, INC., a California corporation, and NETGATEWAY, a Nevada
corporation, on the one hand (collectively, "StoresOnline"), and INTERMEDIA
PARTNERS SOUTHEAST, a California general partnership, on the other hand
("Reseller"). An Addendum is attached hereto and by this reference is made a
part hereof (the "Addendum").
R E C I T A L S
A. Reseller is a cable television operator, engaged in the business
described on the Addendum.
B. StoresOnline owns, operates and maintains an Internet
storefront-building services package comprised of certain services delivered
through StoresOnline's proprietary software, the standard features of which are
more particularly described on the Addendum (the "Services").
C. The Services are delivered through the Internet and may be made
available through a private, branded electronic exchange to be developed for
Reseller.
D. StoresOnline desires to (i) sell and license the Services to Reseller
for Reseller's resale and sublicense to end-user customers or, with the written
permission of StoresOnline, to other resellers and (ii) develop certain on-line
mall(s) to be branded around Reseller's name, brand and image (the "Malls").
E. Reseller desires to purchase and license the Services for resale to
end-user customers and shall use its unique resources to promote the Services as
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, on the basis of the foregoing recitals, and in
consideration of the mutual promises contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
1. Services.
a. Scope of Agreement. This Agreement covers (i) the purchase, licensing,
promotion and sale of the Services and (ii) the design and development of the
Malls pursuant to and in accordance with the terms and conditions set forth on
the Addendum.
b. License Grant; Sale of Services. StoresOnline grants to Reseller,
subject to the terms and conditions of this Agreement, the right and license to
resell and sublicense (in the case of software products) the Services to
Reseller's end-user customers or, with the written permission of StoresOnline,
to other resellers. During the term of this Agreement, Reseller shall have the
exclusive right to resell and sublicense the "Get It Nashville" Mall to end-user
customers or other resellers whose principal place of business is in the
"Nashville, Tennessee Standard Metropolitan Statistical Area." In the case of
software products, Reseller acknowledges that such software is and will remain
proprietary to StoresOnline, is copyrighted and that Reseller acquires no right,
title or interest in or to any such software by this Agreement. Reseller agrees
to sublicense the Services hereunder pursuant to, but not necessarily limited
to, the Standard License Agreement Terms set forth on Exhibit A hereto, and to
cause each of its customers or other resellers to sublicense the Services
pursuant to such terms, which terms, in the case of a another reseller, shall be
accepted upon store set-up and, in the case of an end-user customer, shall be
accepted as part of the storefront registration process described below.
<PAGE>
c. Product Name. It is expressly agreed that the ownership and all right,
title and interest in and to the Services and any trademark, trade name, patent
or copyright relating to the Services is and will remain vested solely in
StoresOnline; provided, however, that as permitted by this Agreement, Reseller
may use any existing or future trademark, trade name, patent or copyright
relating to the Services, such use to be limited to promoting, selling,
installing or maintaining the Services; and provided, further, that as permitted
by this Agreement, the Services may be branded around Reseller's name, brand and
image. Reseller shall use its reasonable business efforts during the term of
this Agreement to protect StoresOnline's trademarks, trade names, patents and
copyrights, but shall not be required to initiate legal action against third
parties for any infringement thereof. Reseller shall notify StoresOnline of any
infringement as soon as practicable after becoming aware of any act which in
Reseller's judgment may constitute such infringement. Reseller shall not use,
directly or indirectly, in whole or in part, StoresOnline's name or any other
trade name or trademark that is owned or used by StoresOnline in connection with
any product other than StoresOnline's products, without the prior written
consent of StoresOnline.
d. Mall Development. StoresOnline shall develop the Malls in accordance
with the terms and conditions set forth herein and on the Addendum. The Malls
shall be branded around Reseller's name, brand and image and shall link to the
Reseller's branded StoresOnline solution. The Malls will include appropriate
Uniform Resource Locator (URL) addresses, four to six featured products and
stores from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text references,
and links to top-tier eCommerce sites. The Malls will also include an
appropriate search engine, commerce functionality, banner and other appropriate
advertising space and such other features as the parties shall mutually agree.
The Mall will be capable of cataloguing stores independently or in conjunction
with all other Malls developed hereunder, if any, as well as other malls which
belong to the StoresOnline electronic mall network. Reseller agrees and
understands that the storefronts of its end-user customers may be placed in one
or more electronic malls developed and/or operated by StoresOnline.
2. Term of Agreement. The term of this Agreement shall commence as of the
execution hereof and continue for an initial term of one (1) year from the date
of this Agreement.
a. Notwithstanding the foregoing, this Agreement may be terminated in
accordance with the provisions of Sections 3(b) or 11.
b. Termination of this Agreement shall not relieve either party of any
obligations incurred prior to termination, including outstanding delivery and
payment obligations and other contractual commitments herein or mutually agreed
to from time to time by the parties in writing. The obligations set forth in
Sections 3d, 6b, 8, 10, 11a, 12c, 12e, 12f and 12h are expressly intended to
survive termination of this Agreement.
3. Prices and Taxes.
a. Prices for Services. StoresOnline shall charge Reseller's end-user
customers the one-time Store Set-up Price set forth on the Addendum.
StoresOnline shall charge Reseller the applicable Monthly Base Wholesale Price
set forth on the Addendum for each active storefront. Unless Reseller elects to
bill its customers directly in accordance with paragraph 6.c hereof, the Monthly
Base Wholesale Price shall be offset by StoresOnline against payments due to
Reseller in accordance with paragraph 6.b hereof.
b. Price Adjustments for Services. The prices for the Services are subject
to change by StoresOnline at any time, and shall become effective ninety (90)
days after written notification of such change to Reseller; provided, however,
that Reseller may terminate this Agreement upon thirty days' written notice to
StoresOnline after Reseller's receipt of any price adjustments in accordance
with this Section 3(b).
c. [ Omitted. ]
d. Prices for Mall Development; Mall Revenue Split. All prices for Mall
design, development and operation provided hereunder shall be as set forth on
the Addendum. Reseller and StoresOnline shall divide the net revenue generated
from all Mall revenue sources on a [redacted] basis for revenue derived in
connection with this Agreement. Such revenue sources to be divided shall
include, but are not limited to: (i) eCommerce advertisers provided by
StoresOnline; (ii) the pro rata share of Mall banner advertising attributable to
Reseller; (iii) click-through revenue from eTailer sales; and (iv) revenue
generated from featured product sales. The parties hereto shall mutually agree
to pricing in the event advertising space is sold on a straight-buy basis and
such revenue shall be divided equally between the parties.
<PAGE>
e. Taxes. All prices for any services or products supplied hereunder are
exclusive of any federal, state or local sales, use, excise, ad valorem or
personal property taxes levied, or any fines, forfeitures or penalties assessed
in connection therewith, as a result of this Agreement or the installation or
use of services or products hereunder (collectively, but exclusive of taxes
based upon StoresOnline's income, "Taxes"). Reseller or Reseller's customers, as
applicable, shall pay any and all such Taxes, or StoresOnline may pay such Taxes
for Reseller's account or Reseller's customers' account, in which case Reseller
shall be obligated to reimburse StoresOnline for amounts so paid. Any such Taxes
which are charged to or payable by StoresOnline will be invoiced to and paid by
Reseller in the manner set forth in Section 6 below. In the event that Reseller
directly invoices its customers pursuant to paragraph 6.c hereof, StoresOnline
shall not be responsible for the collection and payment of any such Taxes.
4. Promotion. Reseller shall promote the Mall and the Services by
cablecasting two thirty second television commercials provided to Reseller by
StoresOnline which conform to Reseller's cable advertising guidelines. In the
event Reseller elects to produce additional commercials, it shall do so at its
own expense. All commercials promoting the services shall be cumulatively
cablecast at Reseller's sole expense a minimum of 500 times per broadcast month
throughout the Nashville, Tennessee broadcast market on cable channels of cable
television systems on which Reseller has a right to insert such advertisements.
Reseller shall use its reasonable business efforts to ensure that the
commercials are placed in even rotations on a variety of such cable television
channels.
5. Customer Accounts.
a. Customer Account Registration Process. The Services provided hereunder
include an online registration process that Reseller's customers will use to
establish storefront accounts with StoresOnline (the "Accounts"). In order to
establish an Account, Reseller's customers must complete a registration process
in accordance with the terms set forth on the StoresOnline web site, a copy of
which are attached hereto as Exhibit B. At the option of the customer,
registration may also be completed non-electronically. To establish an Account,
Reseller's customers must also provide credit card information and authorize the
payment of fees for Services on a monthly basis in advance. The general terms
and conditions for the use of Accounts shall be delivered to Reseller in advance
and shall be posted from time to time on the StoresOnline web site, or in the
event that, with Reseller's prior consent, StoresOnline establishes an
electronic exchange for Reseller, such information shall be delivered to
Reseller in advance and will be posted on Reseller's exchange. The terms and
conditions as posted shall, in all events and at all times, be binding upon
Reseller's customers who establish Accounts. The terms and conditions governing
such Accounts may be amended from time to time by StoresOnline, upon prior
written consent from Reseller.
b. Continuation of Customer Accounts. Continuation of each customer Account
is subject to the timely payment of the monthly fees associated with each
respective such Account, and failure to do so shall constitute grounds for
StoresOnline to cancel and terminate an Account.
6. Billing and Payment Terms.
a. Invoicing for Services. Reseller shall from time to time provide
StoresOnline with a list of the Reseller prices charged for each class of
Accounts or for each Account. In the event Reseller requests that StoresOnline
invoice Reseller's customers directly, StoresOnline shall electronically invoice
Reseller's customers for the retail price of the Services charged by Reseller
and shall directly charge against the respective credit card accounts provided
by such customers for such purpose during the registration process. All
recurring fees due from customers shall be paid in advance and are due on the
first day of each month. In preparing the invoices and charging against the
applicable credit cards, StoresOnline shall use the most recent Reseller retail
prices provided to StoresOnline by Reseller for the Accounts invoiced.
<PAGE>
b. Payment and Collection for Services. StoresOnline shall collect the
monthly fees set by Reseller from Reseller's customers and, after deducting any
monthly fees and expenses to which it is entitled hereunder, shall remit the
balance to Reseller on a monthly basis, together with a statement setting forth
the amounts collected, the amounts deducted and the total amount remitted. In
the event payment from Reseller's customers is not received by StoresOnline
within the specified time, an additional late charge of no more than one and one
half percent (1.5%) of the past due amount will be assessed by StoresOnline for
each thirty (30) days outstanding, prorated on a daily basis, which late charges
shall be due and payable to StoresOnline in full. All payments for Services
shall be made in United States dollars.
c. Direct Reseller Billing for Services. Reseller may invoice its customers
directly for the Services provided hereunder. In the event that Reseller chooses
to bill its customers directly for the Services, Reseller shall remit directly
to StoresOnline the applicable Monthly Base Wholesale Price (per storefront), as
set forth in the Addendum. All such fees shall be paid in advance and are due on
the first day of each month.
d. Billing for Mall Related Charges; Advertising and Related Revenues.
StoresOnline shall invoice Reseller directly for all charges due hereunder in
connection with the design and development of the Malls, which charges shall be
payable in accordance with the Addendum. All revenues generated from the Malls
(including advertising and related revenues) which are required to be divided
between StoresOnline and Reseller pursuant to paragraph 3(d) hereof shall be
invoiced and collected by StoresOnline. StoresOnline shall thereafter forward
all amounts due, if any, to Reseller (net 30 days) at the address provided on
the signature page hereto, together with a statement setting forth the total
amount collected, the amounts payable to Reseller and the total amount remitted,
and such other information as Reseller may reasonably request.
7. Real Time Payment Processing. In the event that a customer wishes to use
the StoresOnline real-time credit card payment processing option, such customer
must establish a customer account with an FDIC network bank and must open an
account with a participating credit-card processor. Any such arrangement shall
be between the customer and StoresOnline.
8. Disclaimer of Warranties; Limitation of Liability; Warranties.
a. Disclaimer of Warranty. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE
ARE NO, AND STORESONLINE EXPRESSLY DENIES, REJECTS AND DISCLAIMS ANY WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTIES OF
MERCHANTIBILITY OR FITNESS FOR PARTICULAR PURPOSE.
b. Limitation of Liability. Each party shall be responsible for its own
acts and omissions. NEITHER PARTY, NOR ITS RESPECTIVE DIRECTORS, OFFICERS,
AFFILIATES, EMPLOYEES AND AGENTS SHALL BE LIABLE TO THE OTHER PARTY OR TO ANY
THIRD PARTY AS A RESULT OF THIS AGREEMENT FOR ANY LOSS OR DAMAGE, WHETHER DIRECT
OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF SERVICE DUE TO MECHANICAL
ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS, STRIKES, WALK-OUTS,
EQUIPMENT OR SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH SUCH PARTY, ITS
DIRECTORS, OFFICERS, AFFILIATES, EMPLOYEES OR AGENTS AGAINST WHOM LIABILITY IS
SOUGHT, HAVE NO REASONABLE CONTROL, EXCEPT TO THE EXTENT CAUSED BY THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY.
c. [ Omitted. ]
d. Warranties of StoresOnline. StoresOnline represents and warrants as
follows:
(i) StoresOnline has expertise, capacity and staffing to adequately provide
the Services authorized or contemplated by this Agreement.
(ii) All components of any systems/product utilized or relied upon by
StoresOnline to perform the services authorized or contemplated by this
Agreement or by any schedules or exhibits hereto, are designed to be used prior
to, during and after the calendar year 2000 A.D., and that all such
systems/product will operate during each such time period without error or
interruption relating to date data, including without limitation, any error or
interruption relating to, or the product of, date data which represents or
references different centuries or more than one century, or leap year, in any
level of any systems/product hardware or software, including, without
limitation, microcode, firmware, application programs, user interfaces, files
and databases (such representation and warranty being referred to as "Year 2000
Compliant"). In the event that any system/product is not Year 2000 Compliant,
StoresOnline shall, at no additional cost to Reseller, promptly modify the
system/product so as to ensure that the system/product is Year 2000 Compliant.
In such event, each party reserves all other rights and obligations under this
Agreement and any applicable schedules or amendments hereto.
<PAGE>
(iii) All Services provided by StoresOnline in connection with this
Agreement shall be performed in compliance with all applicable federal, state
and local laws, rules and regulations, and the applicable laws and regulations
of any jurisdiction or sovereignty where the Services may be used.
9. Documentation and Training. Provided that Reseller has met the minimum
performance standards set forth elsewhere in this Agreement, StoresOnline shall,
on a semi-annual basis, provide free-of-charge a one (1) day training program
for employees designated by Reseller at the StoresOnline corporate headquarters.
Additional training by StoresOnline shall be made available to Reseller at
StoresOnline's standard rates. All expenses of the trainees under this Section 9
shall be borne solely by Reseller.
10. Indemnification and Insurance.
a. Indemnification. Each party (the "Indemnifying Party") shall indemnify,
defend and hold harmless the other party, its affiliates, and each of their
respective partners, officers, directors, employees and agents from and against
any and all damages, claims, liabilities, judgments, actions, lawsuits,
executions, costs (including reasonable attorneys' fees and costs and expenses
of legal actions) and expenses arising out of any act or omission of the
Indemnifying Party, including any breach by the Indemnifying Party of this
Agreement or arising from any alleged or actual libel, slander, defamation,
infringement of copyright or other intellectual property right, piracy,
plagiarism or invasion of the right of privacy committed or alleged to have been
committed by the Indemnifying Party in connection with the Services or this
Agreement.
b. Insurance. StoresOnline shall maintain during the term of this Agreement
insurance on an "Occurrence" basis (not a "Claims-Made" policy) as follows:
Commercial General Liability Insurance coverage on current standard forms as
promulgated by the Insurance Services Office ("ISO") that covers at least
Premises and Operations, Products and Completed Operations, Blanket Contractual
Liability for both oral and written contracts, Personal Injury and Broad Form
Property Damage, to cover StoresOnline's activities as described in this
Agreement, with limits of liability of no less than $1,000,000 per occurrence
for Bodily Injury, Property Damage, Personal and Advertising Injury, all as
defined in the ISO Form, and no less than $1,000,000 in the aggregate. Such
insurance shall cover, at a minimum, the "offenses" of defamation of character
or reputation; invasion of privacy; infringement of trademark, title, slogan,
trade name or service mark; infringement of copyright or misappropriation of
ideas. The Commercial General Liability policy shall be endorsed to provide
that: (i) Reseller shall be included as an Additional Insured, with the added
provision that StoresOnline's policies shall provide primary and
non-contributory coverage to Reseller, irrespective of any insurance carried by
Reseller, whether it be primary, excess, contingent or on any other basis; and
(ii) the insurer waives any rights of subrogation it may have against Reseller.
Upon request of Reseller, StoresOnline shall provide to Reseller a certificate
of insurance demonstrating compliance with the requirements of this paragraph.
11.Default.
a. Reseller's Default. The failure by Reseller to make any payment required
hereunder or a material breach by Reseller of its obligations hereunder shall
constitute an event of default by Reseller. Upon the occurrence of an event of
default by Reseller, StoresOnline shall provide Reseller with written notice
specifying the nature of such default. If Reseller has not cured such default
within thirty (30) days after receipt of such notice, StoresOnline may, at its
sole discretion, terminate this Agreement and/or seek any other available
remedies available at law or in equity.
b. StoresOnline's Default. The failure by StoresOnline to make any payment
required hereunder or a material breach by StoresOnline of its obligations
hereunder shall constitute an event of default by StoresOnline. Upon the
occurrence of an event of default by StoresOnline, Reseller shall provide
StoresOnline with written notice specifying the nature of such default. If
StoresOnline has not cured such default within thirty (30) days after receipt of
such notice, Reseller may, at its sole option, terminate this Agreement and/or
seek any other available remedies available at law or in equity.
c. Insolvency. The commencement of any proceeding (voluntary or
involuntary) in bankruptcy or insolvency by or against either party hereto, or
the appointment (with or without the party's consent) of an assignee for the
benefit of creditors or a receiver with respect to either party hereto shall
constitute an event of default hereunder, and the non-defaulting party may elect
to terminate this Agreement immediately.
<PAGE>
12.General.
a. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement between StoresOnline and Reseller and supersedes all previous
understandings, negotiations and proposals, whether written or oral. This
Agreement may not be altered, amended or modified except by an instrument in
writing signed by duly authorized representatives of each party. In the event
that any one or more provisions contained in this Agreement should for any
reason be held to be unenforceable in any respect, such unenforceability shall
not affect any other provisions hereof, and this Agreement shall be construed as
if such unenforceable provision had not been contained herein.
b. Force Majeure. Neither party shall be liable to the other for delays or
failures to perform an obligation to the other hereunder if such delay or
failure to perform is due to any act of God, acts of civil or military
authority, labor disputes, fire, riots, civil commotion, sabotage, war, embargo,
blockage, floods, epidemics, delays in transportation, inability beyond such
party's reasonable control to obtain necessary labor, materials or manufacturing
facilities, or when due to governmental restrictions. In the event of any such
delay or failure, the parties shall have an additional period of time equal to
the time lost by reason of the foregoing in which to perform hereunder.
c. Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Colorado, without regard to principles of choice of law.
d. Assignment. Neither party shall assign this Agreement or any rights
hereunder without the prior written consent of the other party, which consent
shall not be unreasonably withheld, provided that either party may assign this
Agreement to a subsidiary or affiliate corporation or business entity.
e. Disclosure of Information. Each party acknowledges that, in the course
of purchasing or providing Services and meeting its obligations under this
Agreement, it will obtain information relating to the Services and to the other
party, which is of a confidential and proprietary nature ("Proprietary
Information"). Such Proprietary Information may include, but is not limited to,
trade secrets, know-how, inventions, techniques, processes, programs,
schematics, data, customer lists, financial information and sales and marketing
plans.
Each party shall at all times during the term of this Agreement and for
three years after its termination, keep in confidence and trust from any person
or entity, all Proprietary Information and shall not disclose or use such
Proprietary Information without the prior written consent of the other party,
unless compelled to disclose such Proprietary Information by judicial or
administrative process (including, without limitation, in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of governmental or regulatory authorities) or by other
requirements of law. Upon termination of this Agreement, each party shall
promptly return or destroy all Proprietary Information under its control and all
copies thereof.
Neither party shall disclose the terms of this Agreement to any third party
except as may be mutually agreed or as required by law or the order of a court
of competent jurisdiction.
The above limitations on disclosure of Proprietary Information shall not
apply to information which becomes publicly available through no act of the
other party, is released in writing with no restrictions by the party which owns
the information, is lawfully obtained without breach of this Agreement from
third parties without obligations of confidentiality, is previously known
without similar restrictions as shown by documents in such party's possession
prior to disclosure or is independently developed.
f. Compliance with Law. Each party shall comply with all applicable laws
the violation of which would have a material adverse effect on this Agreement,
including, without limitation, the export control laws of the United States of
America and prevailing regulations which may be issued from time to time by the
United States Department of Commerce and any export control regulations of the
United States and those countries involved in transactions concerning the
exporting, importing and re-exporting of Services purchased under application of
these terms and conditions. Each party shall also comply with the United States
Foreign Corrupt Practices Act and shall indemnify the other party from
violations of such act. This provision 12(f) shall survive any termination or
expiration of the Agreement.
<PAGE>
g. Exercise of Remedies. Any delay or omission by either party to exercise
any right or remedy under this Agreement shall not be construed to be a waiver
of any such right or remedy or any other right or remedy hereunder.
h. Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES DUE TO FAILURE TO
PERFORM ITS OBLIGATIONS HEREUNDER EXCEPT WITH RESPECT TO INDEMNIFICATION
OBLIGATIONS ARISING FROM CLAIMS MADE BY THIRD PARTIES.
i. Headings. Headings contained in this Agreement are for convenience only,
are not a part of this Agreement, and do not in anyway interpret, limit or
amplify the scope, extent or intent of this Agreement or any of the provisions
hereof.
j. [ Omitted. ]
k. Branding. StoresOnline shall have the right to place a "Powered by
Netgateway" or "Powered by StoresOnline" byline in a prominent mutually agreed
upon location on each storefront site and on each Mall site.
l. Publicity. Each party shall have the right to inform its customers and
the public that StoresOnline has entered into this Agreement with the other
party, but not the terms of the Agreement. Upon prior approval of the other
party in each instance, each party may use the other's name or the name of its
customers in marketing the Services and the development of the Malls and may
link to each other's web sites, but neither party will perform any actions which
will harm the other's or its customers' names and reputations.
m. Notices. Any notice required in connection with this Agreement shall be
given in writing and shall be deemed effective upon personal delivery or three
business days after deposit in the United States mail, registered or certified,
postage prepaid and addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days' advance written
notice to the other party. All facsimile notices shall be confirmed by written
notice mailed, as provided above, within five (5) days of the date the facsimile
is sent. Once confirmed, the notice shall be effective as of the date of the
facsimile.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date set forth herein.
STORESONLINE.COM, INC., a California corporation
By: /s/ Donald M. Corliss, Jr.
-----------------------------------------
Name: Donald M. Corliss, Jr.
-----------------------------------------
Their: Authorized Agent
-----------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
NETGATEWAY, a Nevada corporation
By: /s/ Donald M. Corliss, Jr.
-----------------------------------------
Name: Donald M. Corliss, Jr.
-----------------------------------------
Their: President
-----------------------------------------
Address for Notices:
300 Oceangate, Suite 500
Long Beach, CA 90802
(562) 308-0010
INTERMEDIA PARTNERS SOUTHEAST
(a California general partnership)
By:
TCI Spartanburg IP-IV, LLC
(a Delaware limited liability company),
as Managing General Partner
By: /s/ Judi B. Heady
------------------------------------------
Name: Judi B. Heady
------------------------------------------
(Print or type)
Title: Group Vice President
-----------------------------------------
Address for Notices:
AT&T Media Services
2950 Kraft Drive, Suite 100
Nashville, TN 37204
Attention: Judi Heady
With a copy to:
Tele-Communications, Inc.
P.O. Box 5630
Denver, CO 80217-5630
Attention: Legal Department
Address:
Telephone:
Facsimile:
E-mail Address:
URL:
Technical Contact:
Telephone:
E-mail Address:
<PAGE>
ADDENDUM
Name of Reseller: Intermedia Partners Southeast
Type Entity: a California general partnership
Date of Agreement: December 9, 1999
Description of Reseller's Business: Cable communications services
STANDARD FEATURE SET
Catalogs
o International Currencies
o Weight Units: Kilograms, Grams, Pounds and Ounces
o Sending Methods: Internet, Fax/Mail and Phone
o Faxed Internet Orders
o Payment Methods: VISA, MasterCard, American Express, Discover and JCB
o Custom Payment Methods
o Standard Shipping Destinations: United States,
Canadian Provinces and World Countries
o Custom Shipping Destinations
o Multiple Shipping Methods and Regions
o Shipping Formula Variables: Quantities Ordered, Weight and Subtotal
o Shipping Formula Functions: Minimum, Maximum and Range
o Custom Tax Rates
o Custom Survey Questions: Long Answer, Short Answer, Multiple Choice
and Single Choice
o Custom Subtotal Items: Fixed, User Enterable and Optional
o Users and Passwords
Categories
o Unlimited Categories
o Full Description
o Image
Products
o Base Item Number
o Description; Full Description
o Image
o Price
o Sale Price
o Unique Sale Price for Each Catalogue
o Non-Taxable Products
o Weight
o Category
o Multiple Product Options (i.e., Color, Size)
o Multiple Product Option Items (i.e., Red, Green, Blue)
o Custom Item Numbers based on Options
o Custom Pricing based on Options
o Option Conflicts
o Quantity Discounts
o Links to Related Items
o Links to other URL's
o Preview product pages
o Generated HTML code to copy and paste into existing sites
o Graphical pricing for easy integration into existing sites
o Import product information from a test-delimited file
Orders
o E-mail notification of new orders
o Order Status
o Waybill Number and Shipper
o Custom Notes
o End-user Order Tracking
o Export Order Information
StoresOnline Point of Sale
o Multiple Merchant Numbers
o Automatic authorization of orders sent over the Internet
o Manual Authorizations
o Credits
o Automatic Settlement
o Freeze and Thaw Transactions
StoresOnline Hosting
o Home Page Builder
o Unique URL
o 10 MB Free
o Virtual hosting of existing domain names
o Professionally designed templates
o Customize your own templates
StoresOnline Search
o Full Text Search Engine
o Full Word Listing
o Phrase or Boolean Searching
o Re-index your site anytime
o Integrate into existing sites
<PAGE>
PRICING FOR STOREFRONT SERVICES:
One-Time Store Set-up Fee [redacted]
Monthly Base Wholesale Price
per active storefront [redacted]
Optional Monthly Maintenance Plan [redacted]
* The [redacted] set-up fee is for the basic StoresOnline store set-up service.
Additional products, images and custom work will be billed at StoresOnline's
standard rates. A quote will be approved by the merchant prior to the
commencement of such work.
** This fee applies to storefronts with up to 100 products. The Monthly Base
Wholesale Price shall be [redacted] for those storefronts with 101 to 300
products and [redacted] for those storefronts with 301 to 1000 products. Pricing
for Stores with over 1000 products will be determined by quote.
MALL DEVELOPMENT SERVICES AND PRICES
1. Development. StoresOnline shall design and develop one or more on-line
Malls, to be branded around Reseller's name, brand and image, and shall link to
the Reseller's branded StoresOnline solution. The Malls will include appropriate
Uniform Resource Locator (URL) addresses, four to six featured products and
stores from various Reseller and third party advertisers, additional Reseller
and non-Reseller advertiser stores and products catalogued with text references,
and links to top-tier eCommerce sites. The Malls will also include an
appropriate search engine, commerce functionality, banner and other appropriate
advertising space and such other features as the parties shall mutually agree.
The Mall will be capable of cataloguing stores independently or in conjunction
with all other Malls developed hereunder, if any, as well as other malls which
belong to the StoresOnline electronic mall network. Reseller agrees and
understands that the storefronts of its end-user customers may be placed in one
or more electronic malls developed and/or operated by StoresOnline.
2. Pricing. The mall development services fee is waived in return for
Reseller meeting its promotional obligations as set forth herein.
<PAGE>
EXHIBIT A
STANDARD LICENSE AGREEMENT TERMS
1. License. This License allows you to use any software associated with the
provision of the Services.
2. Restrictions. You may not use, copy, modify or transfer the program, or
any copy, modification or merged portion, in whole or in part, except as
expressly provided for in this License. If you transfer possession of any copy,
modification or merged portion of the program to another party, your License is
automatically terminated.
3. Term. The License is effective until terminated. Either party may
terminate the License at any other time by providing written notification to the
other party. The License will also terminate upon the occurrence of certain
events set forth elsewhere in this Agreement. Upon such termination, you agree
to destroy the program together with all copies, modifications and merged
portions in any form.
4. Export Law Assurances. You agree that neither the program nor any direct
product thereof is being or will be shipped, transferred or re-exported,
directly or indirectly, into any country prohibited by the U.S. Export
Administration Act and the regulations thereunder or will be used for any
purpose prohibited by the Act.
5. Limited Warranty. The program is provided "as is" without warranty of
any kind, either expressed or implied, including, but not limited to, the
implied warranties of merchantability and fitness for a particular purpose. The
full text of the warranty is provided in the user manual.
6. Limited Liability. In no event will StoresOnline or Reseller be liable
to you for any damages, including any lost profits, lost savings or other
incidental or consequential damages arising out of the use of or inability to
use such program even if StoresOnline or Reseller has been advised of the
possibility of such damages, or for any claim by any other party.
7. General. If you are a Government end-user, this License conveys only
"Restricted Rights," and in its use, disclosure and duplication are subject to
Federal Acquisition Regulations, subparagraph (c)(1)(11) 52.227-7013. (See U.S.
Government End-User provisions in user manual.) This License will be construed
under the laws of the State of Tennessee, except for that body of law dealing
with conflicts of law. If any provision of the License shall be held by a court
of competent jurisdiction to be contrary to law, that provisions shall be
enforced to the maximum extent permissible, and the remaining provisions of this
License shall remain in full force and effect.
<PAGE>
EXHIBIT B
TERMS FOR ON-LINE REGISTRATION
<PAGE>
NETGATEWAY
ELECTRONIC COMMERCE SERVICES AGREEMENT
THIS ELECTRONIC COMMERCE SERVICES AGREEMENT (this "Agreement") is made
effective as of the Acceptance Date set forth in the initial eCommerce Services
Order Form (December 1, 1999) accepted by Netgateway, a Nevada corporation
("Netgateway"), and the subscriber identified below ("Subscriber").
PARTIES:
SUBSCRIBER NAME: LEADING TECHNOLOGIES, INC. D/B/A MALL OF MINORITY
AMERICAN.COM, INC.
ADDRESS: 5150 EAST PACIFIC COAST HIGHWAY
LONG BEACH, CA 90804
TELEPHONE: (562) 961-8826
FACSIMILE: (562) 961-8727
NETGATEWAY
300 Oceangate, Suite 500
Long Beach, CA 90802
Phone: (562) 308-0010
Fax: (562) 308-0021
1. ELECTRONIC COMMERCE SERVICES.
1.1 eCommerce Services. Subject to the terms and conditions of this
Agreement, during the term of this Agreement Netgateway will, through the
Netgateway Internet Commerce Center(TM) ("Netgateway ICC") provide to Subscriber
the services described in the eCommerce Services Order Form(s) the "eCommerce
Services Order Form(s)") accepted by Netgateway, or substantially similar
services if such substantially similar services would provide Subscriber with
substantially similar benefits (the "eCommerce Services"). All such eCommerce
Services Order Forms will be incorporated herein by this reference as of the
Acceptance Date set forth in each such form. Netgateway and Subscriber have
mutually agreed or will mutually agree upon the detailed final specifications
(the "Specifications") for the eCommerce Services and the development timeline
therefor, all of which are or will be set forth on the attached initial
eCommerce Services Order Form, marked Exhibit "A", and by this reference made a
part hereof.
1.2 Availability. ECommerce Services will be available to Subscriber for
inquiry and order entry functions twenty-four (24) hours a day, seven (7) days a
week. Netgateway reserves the right upon reasonable notice to Subscriber to
limit or curtail holiday or weekend availability when necessary for system
upgrades, adjustments, maintenance, or other operational considerations.
1.3 Enhancements. General enhancements to existing eCommerce Services
provided hereunder, as well as new features that Netgateway incorporates into
its standard commerce processing system, regardless of whether they are
initiated by Netgateway or developed at the request of Subscriber or other
subscribers, shall be made available to Subscriber at no additional cost. Any
new features or services that may be developed by Netgateway during the term of
this Agreement that Netgateway intends to offer to subscribers on a limited or
optional basis may, at Netgateway' option, and subject to Subscribers'
acceptance, be made available to Subscriber at Netgateway's then-current prices
for such new features or services. Enhancements to existing eCommerce Services
requested by Subscriber that benefit only subscriber at the time such
enhancements are put into service shall be billed to Subscriber at Netgateway's
standard rates for programming. All enhancements to the eCommerce Services, and
any new features or services introduced by Netgateway, shall remain the
exclusive proprietary property of Netgateway.
1.4 Training. At no cost to Subscriber, Netgateway shall provide such onsite
training and other assistance, as Netgateway deems necessary to assure that
Subscriber's personnel are able to make effective use of the eCommerce Services.
On-site training shall take place at such times and places as are mutually
agreeable to the parties hereto.
1.5 Subscriber Data.
(a) Subscriber Data. Subscriber will timely supply Netgateway, in a form
acceptable to Netgateway, with all data necessary for Netgateway to perform the
ongoing services to be provided hereunder. It is the sole responsibility of
Subscriber to insure the completeness and accuracy of such data.
(b) Confidentiality: Netgateway acknowledges that all records, data,
files and other input material relating to Subscriber are confidential and shall
take reasonable steps to protect the confidentiality of such records, data,
files and other materials. Netgateway will provide reasonable security
safeguards to limit access to Subscriber's files and records to Subscriber and
other authorized parties.
(c) Protection of Subscriber Files. Netgateway will take reasonable steps
to protect against the loss or alteration of Subscriber's files, records and
data retained by Netgateway, but Subscriber recognizes that events beyond the
control of Netgateway may cause such loss or alteration. Netgateway will
maintain backup file(s) containing all the data, files and records related to
Subscriber, which data, files and records shall be backed up on a daily basis.
Subscriber's file(s), records and data shall, at no cost to Subscriber, be
released to Subscriber on an occurrence that renders Netgateway unable to
perform hereunder, or upon the termination of this Agreement as provided herein.
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(d) Ownership of Data. Netgateway acknowledge that all records, data,
files and other input material relating to Subscriber and its customers are the
exclusive property of the Subscriber.
2. FEES AND BILLING.
2.1 Fees. Subscriber will pay all fees and amounts in accordance with the
eCommerce Services Order Forms.
2.2 Billing Commencement. Billing for eCommerce Services indicated in the
eCommerce Services Order Forms (including the eCommerce Rate, Fee Per Hit,
Banner Advertising and Click Through Revenue), other than the Initial
Development Fee, shall commence on the "Operational Date" indicated in the
eCommerce Services Order Forms. The Initial Development Fee will be due and
payable in accordance with the terms of the eCommerce Services Order Form. In
the event that Subscriber orders other eCommerce Services in addition to those
listed in the initial eCommerce Services Order Form, billing for such services
shall commence on the date Netgateway first provides such additional eCommerce
Services to Subscriber or as otherwise agreed to by Subscriber and Netgateway in
the applicable eCommerce Services Order Form.
2.3 Billing and Payment Terms. Netgateway shall invoice Subscriber monthly in
advance of the provision of Internet Commerce Services, and payment of such fees
will be due within thirty (30) days of the date of each Netgateway invoice. All
payments will be made in U.S. dollars. Late payments hereunder will accrue
interest at a rate of one and one-half percent (1-1/2%) per month, or the
highest rate allowed by applicable law, whichever is lower. If, in its
reasonable judgment, Netgateway determines that Subscriber is not creditworthy
or is otherwise not financially secure, Netgateway may, upon prior written
notice to Subscriber, modify the payment terms to require full payment before
the provision of eCommerce Services or other assurances to secure Subscriber's
payment obligations hereunder.
2.4 Taxes, Utilities and Exclusions. All charges shall be exclusive of any
federal, state or local sales, use, excise, ad valorem or personal property
taxes levied, or any fines, forfeitures or penalties assessed in connection
therewith, as a result of this Agreement or the installation or use of eCommerce
Services hereunder. Any such taxes which may be applicable will be paid by
Subscriber or by Netgateway for Subscriber's account, in which case Subscriber
shall reimburse Netgateway for amounts so paid. Netgateway shall provide
burstible at 1 megabit per second capacity bandwidth for Subscriber's website at
no additional charge. Should Subscriber need additional bandwidth, Netgateway
will provide or make arrangements to provide such additional bandwidth and
invoice Subscriber for such excess bandwidth and/or use beyond a 1 megabit per
second burstible line. Netgateway will provide traffic reports to Subscriber
with respect to burstible capacity. Netgateway is not responsible for providing
connectivity to Subscriber's offices.
3. SUBSCRIBER'S OBLIGATIONS.
3.1 Compliance with Law and Rules and Regulations. Subscriber agrees that
Subscriber will comply at all times with all applicable laws and regulations and
Netgateway's general rules and regulations relating to its provision of
eCommerce Services, currently included herein as Section 10, which may be
updated and provided by Netgateway to Subscriber from time to time ("Rules and
Regulations"). Subscriber acknowledges that Netgateway exercises no control
whatsoever over the content contained in or passing through the Subscriber's web
site or mall ("eCommerce Centers"), and that it is the sole responsibility of
Subscriber to ensure that the information it transmits and receives complies
with all applicable laws and regulations.
3.2 Access and Security. Subscriber will be fully responsible for any
charges, costs, expenses (other than those included in the eCommerce Services),
and third party claims that may result from its use of, or access to, the
Netgateway Internet Commerce Center(TM) or the eCommerce Centers, including, but
not limited to, any unauthorized use or any access devices provided by
Netgateway hereunder.
3.3 No Competitive Services. Subscriber may not at any time permit any
eCommerce Services to be utilized for the provision of any services that compete
with any Netgateway services, without Netgateway's prior written consent.
3.4 Insurance.
(a) Minimum Levels. Not later than six (6) months after the Acceptance
Date set forth on the eCommerce Services Order Form, Subscriber shall put in
place and shall keep in full force and effect during the remaining term of this
Agreement: (i) comprehensive general liability insurance in an amount not less
than $1 million for the first twelve months of this Agreement and $3 million for
the remaining term of this Agreement per occurrence for bodily injury and
property damage; and (ii) workers' compensation insurance in an amount not less
than that required by applicable law. Subscriber also agrees that it will be
solely responsible for ensuring that its agents (including contractors and
subcontractors) maintain, other insurance at levels no less than those required
by applicable law and customary in Subscriber's industries.
(b) Certificates of Insurance. Prior to the Operational Date, Subscriber
will furnish Netgateway with certificates of insurance which evidence the
minimum levels of insurance set forth above, and will notify Netgateway in
writing in the event that any such insurance policies are cancelled.
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(c) Naming Netgateway as an Additional Insured. Subscriber agrees that prior
to the Operational Date, Subscriber will cause its insurance provider(s) to name
Netgateway as an additional insured and notify Netgateway in writing of the
effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 Confidential Information. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology and products, including the
terms and conditions of this Agreement ("Confidential Information").
Confidential Information will include, but not be limited to, each party's
proprietary software and customer information. Each party agrees that it will
not use in any way, for its own account or the account of any third party,
except as expressly permitted by this Agreement, nor disclose to any third party
(except as required by law or to that party's attorneys, accountants and other
advisors as reasonably necessary), any of the other party's Confidential
Information and will take reasonable precautions to protect the confidentiality
of such information.
4.2 Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
5. REPRESENTATIONS AND WARRANTIES.
5.1 Warranties by Subscriber.
(a) Subscriber's Business. Subscriber represents and warrants that:
(i) Subscriber's services, products, materials, data, and information
used by Subscriber in connection with this Agreement as well as Subscriber's and
its permitted customers' and users' use of the eCommerce Services (collectively,
"Subscriber's Business") does not as of the Operational Date, and will not
during the term of this Agreement, operate in any manner that would violate any
applicable law or regulation.
(ii) Subscriber owns or has the right to use all material contained in
the Subscriber's web site, including all text, graphics, sound, video,
programming, scripts, and applets; and
(iii) The use, reproduction, distribution, and transmission of the web
site, or any information or materials contained in it does not (A) infringe or
misappropriate any copyright, patent, trademark, trade secret, or any other
proprietary rights of a third party; or (B) constitute false advertising, unfair
competition, defamation, an invasion of privacy or violate a right of publicity.
(b) Rules and Regulations. Subscriber has read the Rules and Regulations
(Section 10 below) and represents and warrants that Subscriber and Subscriber's
Business are currently in full compliance with the Rules and Regulations, and
will remain so at all times during the term of this Agreement.
(c) Breach of Warranties. In the event of any breach, or reasonably
anticipated breach, of any of the foregoing warranties, in addition to any other
remedies available at law or in equity, Netgateway will have the right
immediately in Netgateway's reasonable discretion, to suspend any related
eCommerce Services if deemed reasonably necessary by Netgateway to prevent any
harm to Netgateway or its business.
5.2 Warranties and Disclaimers by Netgateway.
(a) No Other Warranty. THE eCOMMERCE SERVICES ARE PROVIDED ON AN "AS IS"
BASIS, AND SUBSCRIBER'S USE OF THE eCOMMERCE SERVICES IS AT ITS OWN RISK.
NETGATEWAY DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE.
NETGATEWAY DOES NOT WARRANT THAT THE eCOMMERCE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE OR COMPLETELY SECURE.
(b) Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. NETGATEWAY DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM
NETGATEWAY'S INTERNET COMMERCE CENTER AND OTHER PORTIONS OF THE INTERNET. SUCH
FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR
CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE
THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH NETGATEWAY'S SUBSCRIBERS'
CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED.
ALTHOUGH NETGATEWAY WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT
DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, NETGATEWAY CANNOT GUARANTEE
THAT THEY WILL NOT OCCUR. ACCORDINGLY, NETGATEWAY DISCLAIMS ANY AND ALL
LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
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6. LIMITATIONS OF LIABILITY.
6.1 Exclusions. IN NO EVENT WILL NETGATEWAY BE LIABLE TO ANY THIRD PARTY FOR
ANY CLAIMS ARISING OUT OF OR RELATED TO THIS AGREEMENT, SUBSCRIBER'S BUSINESS
OR OTHERWISE, AND ANY LOST REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF
TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL
DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR SUBSCRIBER'S
BUSINESS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER
THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.2 Limitations. NETGATEWAY, ITS AFFILIATES, EMPLOYEES, OFFICERS AND AGENTS
SHALL NOT BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR ANY LOSS OR DAMAGE,
WHETHER DIRECT OR INDIRECT, RESULTING FROM DELAYS OR INTERRUPTIONS OF SERVICE
DUE TO MECHANICAL ELECTRICAL OR WIRE DEFECTS OR DIFFICULTIES, STORMS, STRIKES,
WALK-OUTS, EQUIPMENT OF SYSTEMS FAILURES, OR OTHER CAUSES OVER WHICH NETGATEWAY,
ITS AFFILIATES, EMPLOYEES, OFFICERS, OR AGENTS AGAINST WHOM LIABILITY IS SOUGHT,
HAVE NO REASONABLE CONTROL, OR FOR LOSS OR DAMAGE, DIRECT OR INDIRECT, RESULTING
FROM INACCURACIES, ERRONEOUS STATEMENTS, ERRORS OF FACTS, OMISSIONS, OR ERRORS
IN THE TRANSMISSION OR DELIVERY OF eCOMMERCE SERVICES, OR ANY DATA PROVIDED AS A
PART OF THE eCOMMERCE SERVICES PURSUANT TO THIS AGREEMENT, EXCEPT TO THE EXTENT
CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF NETGATEWAY. IN ADDITION,
IN NO EVENT SHALL NETGATEWAY BE LIABLE TO SUBSCRIBER OR TO ANY THIRD PARTY FOR
SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL LOSSES OR DAMAGES WHICH
SUBSCRIBER OR SUCH THIRD PARTY MAY INCUR OR EXPERIENCE ON ACCOUNT OF ENTERING
INTO OR RELYING ON THIS AGREEMENT OR UTILIZING THE NETGATEWAY eCOMMERCE
SERVICES, REGARDLESS OF WHETHER NETGATEWAY HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES OR WHETHER SUCH DAMAGES ARE CAUSED, IN WHOLE OR IN PART, BY THE
NEGLIGENCE OF NETGATEWAY.
6.3 Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, NETGATEWAY'S MAXIMUM AGGREGATE LIABILITY TO SUBSCRIBER RELATED TO OR
IN CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID BY
SUBSCRIBER TO NETGATEWAY HEREUNDER FOR THE PERIOD CONSISTING OF THE PRIOR
[redacted] FULL CALENDAR [redacted].
6.4 Time For Making Claims. ANY SUIT OR ACTION BY SUBSCRIBER AGAINST
NETGATEWAY, ITS AFFILIATES, OFFICERS, DIRECTORS, AGENTS EMPLOYEES, SUCCESSORS OR
ASSIGNS, BASED UPON ANY ACT OR OMISSION ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR SERVICES PERFORMED HEREUNDER, OR ANY ALLEGED BREACH THEREOF, SHALL
BE COMMENCED WITHIN [redacted] OF THE FIRST OCCURRENCE GIVING RISE TO SUCH
CLAIM OR BE FOREVER BARRED. THIS PROVISION DOES NOT MODIFY OR OTHERWISE AFFECT
THE LIMITATION OF NETGATEWAY'S LIABILITY SET FORTH IN SECTION 6 OR ELSEWHERE IN
THIS AGREEMENT.
6.5 Subscriber's Insurance. Subscriber agrees that it will not pursue any
claims against Netgateway for any liability Netgateway may have under or
relating to this Agreement until Subscriber first makes claims against
Subscriber's insurance provider(s) and such insurance provider(s) finally
resolve(s) such claims.
6.6 Basis of the Bargain; Failure of Essential Purpose. Subscriber
acknowledges that Netgateway has set its prices and entered into this Agreement
in reliance upon the limitations of liability and the disclaimers of warranties
and damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 Netgateway's Indemnification of Subscriber. Netgateway will indemnify,
defend and hold Subscriber harmless from and against any and all costs,
liabilities, losses, and expenses (including, but not limited to, reasonable
attorneys' fees) (collectively, "Losses") resulting from any claim, suit,
action, or proceeding (each, an "Action") brought against Subscriber alleging
the infringement of any third party registered U.S. copyright or trademark or
issued U.S. patent resulting from the provision of eCommerce Services pursuant
to this Agreement (but excluding any infringement contributorily caused by
Subscriber's Business).
7.2 Subscriber's Indemnification of Netgateway. Subscriber will indemnify,
defend and hold Netgateway, its affiliates and customers harmless from and
against any and all Losses resulting from or arising out as Subscriber's breach
of any provision of this Agreement or any Action brought against Netgateway, its
directors, employees, affiliates or Subscribers alleging with respect to the
Subscriber's Business: (a) infringement or misappropriation of any intellectual
property rights; (b) defamation, libel, slander, obscenity, pornography or
violation of the rights of privacy or publicity; (c) spamming, or any other
offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or (d) any violation of any other applicable law or regulation.
7.3 Notice. Each party will provide the other party, prompt written notice of
the existence of any such event of which it becomes aware, and an opportunity to
participate in the defense thereof.
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8. DISPUTE RESOLUTION.
8.1 Procedures. It is the intent of the parties that all disputes arising
under this Agreement be resolved expeditiously, amicably, and at the level
within each party's organization that is most knowledgeable about the disputed
issue. The parties understand and agree that the procedures outlined in this
Paragraph 8 are not intended to supplant the routine handling of inquiries and
complaints through informal contact with customer service representatives or
other designated personnel of the parties. Accordingly, for purposes of the
procedures set forth in this paragraph, a "dispute" is a disagreement that the
parties have been unable to resolve by the normal and routine channels
ordinarily used for such matters. Before any dispute arising under this
Agreement, other than as
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provided in paragraph 8.5 below, may be submitted to arbitration, the parties
shall first follow the informal and escalating procedures set forth below.
(a) The complaining party's representative will notify the other party's
representative in writing of the dispute, and the non-complaining party will
exercise good faith efforts to resolve the matter as expeditiously as possible.
(b) In the event that such matter remains unresolved thirty (30) days after
the delivery of the complainant party's written notice, a senior representative
of each party shall meet or confer within ten (10) business days of a request
for such a meeting or conference by either party to resolve such matter.
(c) In the event that the meeting or conference specified in (b) above does
not resolve such matter, the senior officer of each party shall meet or confer
within ten (10) business days of the request for such a meeting or conference by
either party to discuss and agree upon a mutually satisfactory resolution of
such matter.
(d) If the parties are unable to reach a resolution of the dispute after
following the above procedure, or if either party fails to participate when
requested, the parties may proceed in accordance with paragraph 8.2 below.
8.2 Binding Arbitration. Except as provided in paragraph 8.5 below, any
dispute arising under this Agreement shall, after utilizing the procedures in
paragraph 8.1, be resolved by final and biding arbitration in Los Angeles,
California, before a single arbitrator selected by, and in accordance with the
rules of commercial arbitration of, the American Arbitration Association or as
otherwise provided in Paragraph 11.6. Each party shall bear its own costs in the
arbitration, including attorney's fees, and each party shall bear one-half of
the cost of the arbitrator.
8.3 Arbitrator's Authority. The arbitrator shall have the authority to
award such damages as are not prohibited by this Agreement and may, in addition
and in a proper case, declare rights and order specific performance, but only in
accordance with the terms of this Agreement.
8.4 Enforcement of Arbitrator's Award. Any Party may apply to a court of
general jurisdiction to enforce a arbitrator's award, and if enforcement is
ordered, the party against which the order is issued shall pay the costs and
expenses of the other party in obtaining such order, including responsible
attorneys' fees.
8.5 Access to Courts. Notwithstanding the provisions of paragraphs 8.1 and
8.2 above, any action by Netgateway to enforce its rights under Paragraphs 10.3
of this Agreement or to enjoin any infringement of the same by Subscriber may,
at Netgateway election, be commenced in the state of federal courts of Los
Angeles, California, and subscriber consents to personal jurisdiction and venue
in such courts for such actions.
9. TERM AND TERMINATION.
9.1 Term. This Agreement will be effective on the date first above written
and will terminate three (3) years ("Initial Term") from the date hereof, unless
earlier terminated according to the provisions of this Section 9. This Agreement
will automatically renew for an additional term of three (3) years unless a
party hereto elects not to so renew and notifies the other party in writing of
such election by a date, which is six (6) months prior to the lapse of the
Initial Term.
9.2 Termination. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement and fails to cure such breach within thirty (30) days after
receipt of written notice of the same, except in the case of failure to pay
fees, which must be cured within five (5) days after receipt of written notice
from Netgateway; (ii) the other party becomes the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors; or
(iii) the other party becomes the subject of an involuntary petition in
bankruptcy or any involuntary proceeding relating to insolvency, receivership,
liquidation or composition for the benefit of creditors, if such petition or
proceeding is not dismissed with sixty (60) days of filing.
[redacted]
9.4 Effects of Termination. Upon the effective date of expiration or
termination of this Agreement: (a) Netgateway will immediately cease providing
the eCommerce Services; (b) any and all payment obligations of Subscriber under
this Agreement will become due immediately; and (c) within thirty (30) days
after such expiration or termination, each party will return all Confidential
Information of the other party in its possession at the time of expiration or
termination and will not make or retain any copies of such Confidential
Information except as required to comply with any applicable legal or
accounting record keeping requirement.
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9.5 Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 2,3,4,5,6,7,8,9 and 10.
10. USE OF eCOMMERCE SERVICES - RULES AND REGULATIONS.
10.1 Proprietary Systems. Subscriber acknowledges that the software systems
utilized by Netgateway in the provision of eCommerce Services hereunder,
including all enhancements thereto, and all screens and formats used in
connection therewith are the exclusive proprietary of Netgateway, and Subscriber
shall not publish, disclose, display, provide access to or otherwise make
available any Netgateway eCommerce software or products thereof, or any screens,
formats, reports or printouts used, provided, produced or supplied from or in
connection therewith, to any person or entity other than an employee of
Subscriber without the prior written consent of, and on terms acceptable to
Netgateway, which consent shall not be unreasonably withheld; provided, however,
that Subscriber may disclose to a governmental or regulatory agency or to
customers of Subscriber any information expressly prepared and acknowledge in
writing by Netgateway as having been prepared for disclosure to such
governmental or regulatory agency or to such customers. Neither party shall
disclose Subscriber's use of eCommerce Services in any advertising or
promotional materials without the prior written consent to such use, and
approval of such materials, by the other.
10.2 Use of Services Personal to Subscriber. Subscriber agrees that it will
use the services provided hereunder only in connection with its eCommerce
business, and it will not, without the express written permission of Netgateway,
sell, lease, or otherwise provide or make available eCommerce Services to any
third party.
10.3 Survival of Obligations. The obligations of this paragraph 10 shall
service termination of this Agreement. Subscriber understands that the
unauthorized publication or disclosure of any of Netgateway software or copies
thereof, or the unauthorized use of eCommerce Service would cause irreparable
harm to Netgateway for which there is no adequate remedy at law. Subscriber
therefore agrees that in the event of such unauthorized disclosure or use,
Netgateway may, at its discretion and at Subscriber's expense, terminate this
Agreement, obtain immediate injunctive relief in a court of competent
jurisdiction, or take such other steps as it deems necessary to protect its
rights. If Netgateway, in its reasonable, good faith judgement, determines that
there is a material risk of such unauthorized disclosure or use, it may demand
immediate assurances, satisfactory to Netgateway, that there will be no such
unauthorized disclosure or use. In the absence of such assurance, Negateway may
immediately terminate this Agreement and take such other steps as it deems
necessary. The rights of Netgateway hereunder are in addition to any other
remedies provided by law.
11. MISCELLANEOUS PROVISIONS.
11.1 Force Majeure. Except for the obligation to pay money, neither party
will be liable for any failure or delay in its performance under this Agreement
due to any cause beyond its reasonable control, including act of war, acts of
God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute,
govermental act or failure of the Internet, provided that the delayed party: (a)
gives the other party prompt notice of such cause, and (b) uses its reasonable
commercial efforts to correct promptly such failure or delay in performance.
11.2 No Lease. This Agreement is a services agreement and is not intended to
and will not constitute a lease of any real or personal property. Subscriber
acknowledges and agrees that (i) it has been granted only a license to use
Netgateway's ICC and any equipment provided by Netgateway in accordance with
this Agreement, (ii) Subscriber has not been granted any real property interest
in the Netgateway's ICC, and (iii) Subscriber has no rights as a tenant or
otherwise under any real property or landlord/tenant laws, regulations, or
ordinances.
11.3 Marketing. Subscriber agrees that Netgateway may refer to Subscriber by
trade name and trademark, and may briefly describe Subscriber's Business, in
Netgateway's marketing materials and web site. Subscriber hereby grants
Netgateway a license to use any Subscriber trade names and trademarks solely in
connection with the rights granted to Netgateway pursuant to this Section 11.3.
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11.4 Government Regulations. Subscriber will not export, re-export,
transfer, or make available, whether directly or indirectly, any regulated item
or information to anyone outside the U.S. in connection with this Agreement
without first complying with all export control laws and regulations which may
be imposed by the U.S. Government and any country or organization of nations
within whose jurisdiction Subscriber operates or does business.
11.5 Non-Solicitation. During the period beginning on the Operational Data
and ending on the first anniversary of the termination or expiration of this
Agreement in accordance with its terms, Subscriber agrees that it will not, and
will ensure that its affiliates do not, directly or indirectly, solicit or
attempt to solicit for employment any persons employed by Netgateway during such
period.
11.6 Governing Law; Severability; Waiver. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (without regard to that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sales of Goods. In the event any
provision of this Agreement is held by a tribunal of competent jurisdiction to
be contrary to the law, the remaining provisions of this Agreement will remain
in full force and effect. The waiver of any breach or default of this Agreement
will not constitute a waiver of any subsequent breach or default, and will not
act to amend or negate the rights of the waiving party.
11.7 Assignment; Notices. Subscriber may not assign its rights or delegate
its duties under this Agreement either in whole or in part without the prior
written consent of Netgateway, except that Subscriber may assign this Agreement
in whole as part of a corporate reorganization, consolidation, merger, or sale
of substantially all of its assets. Any attempted assignment or delegation
without such consent will be void. Netgateway may assign this Agreement in whole
or part. This Agreement will bind and inure to the benefit of each party's
successors and permitted assigns. Any notice or communication required or
permitted to be given hereunder may be delivered by hand, deposited with an
overnight courier, sent by confirmed facsimile, or mailed by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
address of the receiving party indicated on the signature page hereof, or at
such other address as may hereafter be furnished in writing by either party
hereto to the other. Such notice will be deemed to have been given as of the
date it is delivered, mailed or sent, whichever is earlier.
<PAGE>
requested, postage prepaid, in each case to the address of the receiving party
indicated on the signature page hereof, or at such other address as may
hereafter be furnished in writing by either party hereto to the other. Such
notice will be deemed to have been given as of the date it is delivered, mailed
or sent, whichever is earlier.
11.8 Relationship of Parties. Netgateway and Subscriber are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Netgateway
and Subscriber. Neither Netgateway nor Subscriber will have the power to find
the other or issue obligations on the others' behalf without the other's prior
written consent, except as otherwise previously provided herein.
11.9 Entire Agreement; Counterparts. This Agreement, including all documents
incorporated herein by reference, constitute the complete and exclusive
agreement between the parties with respect to the subject matter hereof, and
supercedes and replaces any and all prior or contemporaneous discussions,
negotiations, understandings and agreements, written and oral, regarding such
subject matter. This Agreement may be excuted in two or more counterparts, terms
of which will be deemed an original, but all of which together shall constitute
one and the same instrument.
Subscriber's and Netgateway's authorized representatives have read the foregoing
and all documents incorporated therein and agree and accept such forms effective
as of the date first above written.
SUBSCRIBER
Signature: /s/ Anna T. Brannon
-------------------------------------------
Print Name: Anna T. Brannon
-------------------------------------------
Title: CEO
-------------------------------------------
NETGATEWAY
Signature: /s/ Donald M. Corliss, Jr.
-------------------------------------------
Print Name: Donald M. Corliss, Jr.
-------------------------------------------
Title: President
-------------------------------------------
Signature: ____________________________________________
Print Name: ____________________________________________
Signature: ____________________________________________
Print Name: ____________________________________________
<PAGE>
EXHIBIT "A"
eCOMMERCE SERVICES ORDER FORM
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
Subscriber Name: Leading Technologies, Inc. d/b/a Mall of Minority America.com,
Inc.
Form Date: December 1, 1999
Form No.: 001
GENERAL INFORMATION:
1. By submitting this eCommerce Services Order Form ("Form") to Netgateway,
Subscriber hereby places an order for the eCommerce Services described herein
pursuant to the terms and conditions of the Electronic Commerce Services
Agreement between Subscriber and Netgateway (the "ECS Agreement").
2. Billing, with the exception of Development Fees, will commence on the
Operational Date set forth below or the date that Subscriber first begins to
process transactions through the Netgateway Internet Commerce Center,
whichever occurs first.
3. Netgateway will provide the eCommerce Services pursuant to the terms and
conditions of the ECS Agreement, which incorporates this Form. The terms of
this Form supersede, and by accepting this Form, Netgateway hereby rejects,
any conflicting or additional terms provided by Subscriber in connection with
Netgateway's provision of the eCommerce Services. If there is a conflict
between this Form and any other Form provided by Subscriber and accepted by
Netgateway, the Form with the latest date will control.
4. Netgateway will not be bound by or required to provide eCommerce Services
pursuant to this Form or the ECS Agreement until each is signed by an
authorized representative of Netgateway.
SUBSCRIBER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER.
Submitted By: /s/ Anna Brannon Operational Date: 12/3/99
---------------------- ------------------------
(Authorized Signature)
Print Name: Anna Brannon
----------------------
Title: CEO
----------------------
Netgateway Acceptance
/s/ Donald M. Corliss Date: 12/4/99
- ------------------------------------ ------------------------------------
(Authorized Signature)
<PAGE>
NETGATEWAY
ECOMMERCE SERVICES ORDER FORM
Subscriber Name: Leading Technologies, Inc. d/b/a Mall of Minority America.com,
Inc.
Form Date: December 1, 1999
Form No.: 001
Terms:
1. Project Specifications. A Phase II Statement of Work and Project
Specifications for the eCommerce Services is annexed hereto as Schedule 1 and
incorporated herein by this reference.
2. Development Timeline. Development of the eCommerce Services shall be
completed on or before [redacted].
3. Development Fees. The development fees for the eCommerce Services shall be as
set forth on the Phase II Statement of Work and Project Specifications
annexed hereto as Schedule 1, and shall be payable in accordance with the
terms set forth thereon.
4. Additional Fees. Additional fees, including without limitation, transaction
fees, monthly mall administration fees, hosting fees and monthly merchant
fees shall be as set forth on Schedule 1 hereto, and shall be paid in
accordance with terms mutually agreed upon by the parties.
5. Publicity. Neither party shall make any public announcement of this Agreement
or of the relationship they have entered into without the prior written
consent of the other.
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
Phase II - Statement of Work Mall of Minority America
As part of this Statement of Work, Netgateway shall provide the following
deliverables:
Site Map:
[GRAPHIC OMITTED]
Home Page:
o Page will have general information and links available to the public
o Links to:
* MOMA Corporate Web Site
* WMBE/MBE Referral Services - Links to other services
* Travel (external provider)
* Legislative Updates - administered through the administration
component of site
* News - (external provider of information)
* Information on becoming a MOMA member (buyers and sellers)
* Training & Seminars Available - administered through admin component
* About the Mall
o General Links/Navigation will be at the top of the page (below MOMA logo)
displayed as buttons
* Buttons will be consistent throughout the entire site
o Login to secured part of the site
-1-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
* Must be a MOMA member to enter this area
* Membership is approved by MOMA (off line)
* Email sent to Member once membership is approved
o Rotating Advertisement Banners
* Ability to track click throughs on banners as revenue generating
component
* Rotation of ad banners
* Ability to place priority/precedence of banners
Becoming a Member:
o Access to a demonstration store
o Information on how to become a member
o Request membership - Sellers form & buyers form (2 types of forms)
o Form will be mailed to MOMA address for review and approval
o Seller Membership form must have ability to upload image of
certification document
o Buyers Membership form
o Upon approval of application, email sent to new member with account
information (manual process - managed through admin component)
o Member will be billed based on the package selected
o Payments will be processed automatically through the admin component
o Duration based on package selected
o Payment methods - Visa, MasterCard, American Express, Purchase Order
o To use purchase order, member must fill out a credit application
& be approved by MOMA
o Free trial membership - for a given period of time
* Default trial period for entire site
* Ability to change trial period for each membership account
o On Line Credit Application - for approval by MOMA
Member Login: (Secured Access Site):
o Once membership has been approved, members can log into the mall to get to
membership services area
Search/Advanced Search:
o Ability to search merchant stores and products using:
o SIC codes
o Categories (defined by mall administrator - store owners use categories
for products/store)
o Type of ownership
o Keyword - search for stores/products
o Display search results
o Sorted in Alpha order
o Store name - link to store home page
o Product name (if applicable) - link to product detail page in store
o Type of ownership certification
o SIC codes associated to store/merchant
-2-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
Personalization of Mall:
o Integration of a 3rd party package to manage personalization (Trivida)
o Need to define what personalization will look like
RFP/RFQ:
o List of all active/current RFP's/RFQ's
o Ability to search for RFP/RFQ by
o SIC
o Categories
o Type of ownership
o Ability to submit RFP/RFQ (buyers only)
o Ability to respond to RFP/RFQ (sellers/merchants only)
Shopping Cart/Order Pipeline:
o Shopping cart at mall level - not store specific
o Ability to purchase items across stores
o Ability to checkout using credit card, procurement card or purchase order
o Ability to complete online credit card process
o Send amount to store merchant account
o Ability to send transaction fee to MOMA merchant account - process merchants
credit for transaction fee
o Ability to track orders on-line
o Split order into multiple orders (based on merchant)
o Customer/buyer only sees one order - only needs one order number
o Ability for customer to enter billing address and separate shipping address
o Ability to enter additional shipping information
o Ability to specify shipping method
o Ability to specific if a signature is required upon delivery
Store/Merchant Directory Listing
o List of Minority Business that have store fronts within the Mall
o Sorted in alpha order
o Link to store front
Buyer Directory Listing
o List of business that have buyer memberships
o Sorted in alpha order
Mall Administration:
o Multiple levels of security/access to administration area
o Sellers administration of their individual store fronts
o Transaction reporting/billing of sellers
-3-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
o By Seller, ability to take a percent of the sales transaction at the
time the transaction occurs
o Percent can vary by seller
o View Transactions Reporting
* By Date
* By Seller Specific
* By SIC Code
* By Minority Type
o Payment Processing
o Payment methods configurable by store
o Ability to accept credit cards as payment methods
o Ability to process credit card transactions on line
o Ability to accept purchase orders
* Question for Anna - if using a purchase order to buy products, how
will MOMA get % of transaction. Do we charge Merchants credit card
immediately?
o Ability to use procurement cards - need more information on how to
handle procurement cards
o Ability to charge merchant for transaction (% that MOMA will take from
the transaction) at the time the transaction occurs
o Membership Management
o Ability to manually approve membership applications
o Ability to manually activate and deactivate members
o Ability to manage membership addresses
o Ability to allow specific buyers to use purchase orders or procurement
cards - once they have been approved by MOMA administrator
o All merchants/store owners must have merchant accounts and place a
credit card on file for transactions
o Order management
* Ability to process orders on line
* Ability to change status of order
* Ability to enter shipping methods, tracking numbers, etc.
o Management of stores
o Ability for a merchant to manage store by adding, deleting products,
managing product pricing, etc....
o Ability for MOMA administrator to activate/deactivate a store - only
MOMA administrator can activate stores
o Ability to have multiple SIC codes associated to store/merchant
o Ability to have multiple categories associated to store/merchant
o Ability to have categories associated to the products
o Ad Banner Management
o Ability to add and delete advertisements
o Ability to prioritize ad banners
-4-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
o Ability to schedule an ad banner campaign - start and stop dates
associated to activation of banner
o Make ad banners a hot link to another site
o Ability to track and report on click throughs for all banners
o Integrate a 3rd party ad banner management package (like 24x7)
o Manage Mall Categories - ability to add, delete, activate and deactivate
categories for products and stores within the mall
o Content Management
o Assign Page to left navigation on Mall home
o Indexing feature for link on left navigation
o Add content specific to page
o Add links to page
o Add Images to Page
o Manage the following pages:
* WMBE/MBE Resources
* Legislative Updates
* Member News
* Training & Services
* Free Email - link to external provider of email services. Provider
TBD
* News - link to external provider of news services. Provider TBD
* Travel - link to external provider of travel services. Provider
TBD
* About the Mall text on the Home page
* Other
Auction Capability:
o Customer/Seller/Buyer Auction
o Ability for customers (sellers and buyers) to place products up for
auction
o Ability to define minimum bid for auction items
o Ability to define the duration for auction item(s)
o Ability to enter one product and have the quantity of items be one or
many (unlimited number)
o Ability to define the payment methods accepted for auction item -
defined by customer placing item up for auction
o Ability to use iEscrow as intermediary for auction item purchased
o Ability to capture information about the customer placing the bid
o Ability for customers to bid on products place up for auction
o Ability to accept highest bid for product. If there is more than one
available, accept the highest bids based on the number of available
items
o Ability to attach image/picture of auction item
o Web Administration of Auctions
o Ability to have sellers place products up for auction within their
store administration
o Ability to view bidding history
o Email notification to highest bidders and owner of auction product at
the end of the auction
o Ability to manage auction products through the web administration site
* Activate and deactivate auction products
* Edit auction products
-5-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
COSTS:
The following development costs and other related costs shall be payable to
Netgateway. Development costs shall be due and payable as follows:
[redacted]
Project Development Costs Payable to Netgateway:
- --------------------------------------------------------------------------------
Item Cost
- --------------------------------------------------------------------------------
Advanced Search Element - SIC codes, categories, type of
organization
- ----------------------------------------------------------
Auto Generate Membership
- ----------------------------------------------------------
Scheduler for 30 day free trial
- ----------------------------------------------------------
Auto Generate Billing
- ----------------------------------------------------------
Configurable Membership Packages
- ----------------------------------------------------------
Additional Payment methods - procurement cards &
purchase orders
- ----------------------------------------------------------
Mall Administration (including content management)
- ----------------------------------------------------------
Transaction Fee Splitting
- ----------------------------------------------------------
Mall Development Cost [redacted]
- --------------------------------------------------------------------------------
Auction Development Cost [redacted]
- --------------------------------------------------------------------------------
Total Development Cost [redacted]
- --------------------------------------------------------------------------------
[redacted] [redacted]
- --------------------------------------------------------------------------------
Phase II Development Cost [redacted]
- --------------------------------------------------------------------------------
Additional Development Costs Payable to Netgateway (excluded from estimate
above): All such amounts shall be agreed to by the parties in writing prior to
the commencement of any such development work by Netgateway:
- --------------------------------------------------------------------------------
Item Cost
- --------------------------------------------------------------------------------
License Fee for email Services
o Transaction fee (if applicable) [redacted]
- --------------------------------------------------------------------------------
License Fee for Personalization Software
o Transaction fee (if applicable) [redacted]
- --------------------------------------------------------------------------------
License Fee (transaction fee) for other external services
listed above
o Travel Services
o News Services
o Yellow/White Pages [redacted]
- --------------------------------------------------------------------------------
License Fee for Subscription to SIC and NAICS code
databases [redacted]
- --------------------------------------------------------------------------------
-6-
<PAGE>
Deliverables -- Project Management
Statement of Work
- --------------------------------------------------------------------------------
Other Costs Payable to Netgateway;
- --------------------------------------------------------------------------------
Item Cost
- --------------------------------------------------------------------------------
Store Building (one time cost per Seller/Store) [redacted]
- --------------------------------------------------------------------------------
Monthly Mall Administration Fee - for
administrating ecommerce site (services to be
defined) [redacted]
- --------------------------------------------------------------------------------
Minimum Mall Transaction Fee (Hosting Fee) [redacted]
- --------------------------------------------------------------------------------
Transaction Fees [redacted] of Mall of Minority
America [redacted] from
Sales Transactions
- --------------------------------------------------------------------------------
Ad Banner Fees [redacted] ad banner fees now.
To be renegotiated at a later
date if needed
- --------------------------------------------------------------------------------
Membership Fees [redacted] of Mall of Minority
America [redacted] from
Membership Fees for Sellers
brought in through Call Center
- --------------------------------------------------------------------------------
Featured Sellers/Buyers [redacted] of Mall of Minority
America [redacted] from
Featured Spots Sold
- --------------------------------------------------------------------------------
-7-
<PAGE>
Exhibit 10.4
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement") dated as of January
7, 2000 is made between JOHN J. POELMAN, in his individual capacity (the
"Obligor") and NETGATEWAY, INC., a Delaware corporation ("Netgateway").
R E C I T A L S:
WHEREAS, Netgateway will advance $300,000 to Obligor and
Galaxy Enterprises, Inc., a Nevada corporation ("Galaxy", and together with
Obligor, collectively, the "Maker") pursuant to that certain Promissory Note of
even date herewith (the "Note"), and may in the future advance additional sums
pursuant to terms of additional promissory note and other agreements. Netgateway
requires that the Obligor execute and deliver, and grant the Liens provided for
in, this Agreement prior to advancing any sums to Galaxy.
WHEREAS, Obligor is a founder, officer and shareholder of
Galaxy and will benefit substantially by reason of Netgateway's advancing sums
to Galaxy.
NOW, THEREFORE, to induce Netgateway to advance such sums and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Obligor has agreed to pledge and grant a security
interest in the Collateral as security for the performance of any and all
obligations of the Maker for the performance by it of its agreements, covenants
and undertakings under or in respect of the Note or this Agreement (the "Secured
Obligations").
Section 1. Pledge.
a. Grant. As collateral security for the prompt
payment in full when due (whether at stated maturity, by acceleration or
otherwise) and performance of the Secured Obligations, the Obligor hereby
pledges and grants to Netgateway a security interest in all of the Obligor's
right, title and interest in and to the following property, whether now owned or
hereafter acquired by the Obligor and whether now existing or hereafter coming
into existence (collectively, the "Collateral"):
i. 200,000 shares of common stock of Galaxy
represented by the respective certificates identified in Annex 1, together with
the certificates representing the same (collectively, the "Pledged Stock");
ii. all shares, securities, moneys or property
representing a dividend on, or a distribution or return of capital in respect of
any of the Pledged Stock, resulting from a split-up, revision, reclassification
or other like change of any of the Pledged Stock or otherwise received in
exchange for any of the Pledged Stock and all other rights issued to the holders
of, or otherwise in respect of, any of the Pledged Stock;
iii. in the event of any consolidation or merger
in which Galaxy is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation (unless such successor
corporation is Galaxy itself) formed by or resulting from such consolidation or
merger (collectively, and together with the property described in clauses (i)
and (ii) above, the "Stock Collateral")
<PAGE>
b. Perfection. Concurrently with the execution and
delivery of this Agreement, the Obligor shall (i) deliver to Netgateway all
certificates identified in Annex 1, accompanied by undated stock powers duly
executed in blank and (ii) take all such other actions as shall be necessary or
as Netgateway may request to perfect and establish the priority of the liens
granted by this Agreement.
c. Preservation and Protection of Security Interests.
The Obligor shall:
i. upon the acquisition after the date hereof by
the Obligor of any Stock Collateral, promptly either (x) transfer and deliver to
Netgateway all such Stock Collateral (together with the certificates
representing such Stock Collateral securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank) or (y) take such
other action as Netgateway shall deem necessary or appropriate to perfect, and
establish the priority of, the liens granted by this Agreement in such Stock
Collateral; and
ii. give, execute, deliver, file or record any and
all financing statements, notices, contracts, agreements or other instruments,
obtain any and all governmental approvals and take any and all steps that may be
necessary or as Netgateway may request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of the liens
granted by this Agreement or to enable Netgateway to exercise and enforce its
rights, remedies, powers and privileges under this Agreement with respect to
such liens, including causing any or all of the Stock Collateral to be
transferred of record into the name of Netgateway or its nominee (and Netgateway
agrees that if any Stock Collateral is transferred into its name or the name of
its nominee, Netgateway will thereafter promptly give to the Obligor copies of
any notices and communications received by it with respect to the Stock
Collateral pledged by the Obligor).
d. Attorney-in-Fact. Subject to the rights of the
Obligor hereunder, Netgateway is hereby appointed the attorney-in-fact of the
Obligor for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments which Netgateway may deem
necessary or advisable to accomplish the purposes of this Agreement, to preserve
the validity, perfection and priority of the liens granted by this Agreement
and, following any Event of Default (as defined in the Note), to exercise its
rights, remedies, powers and privileges under this Agreement. This appointment
as attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, Netgateway shall be entitled under
this Agreement upon the occurrence and continuation of any Event of Default (i)
to ask, demand, collect, sue for, recover, receive and give receipt and
discharge for amounts due and to become due under and in respect of all or any
part of the Collateral; (ii) to receive, endorse and collect any instruments or
other drafts, instruments, documents and chattel paper in connection with clause
(i) above; (iii) to file any claims or take any action or proceeding that
Netgateway may deem necessary or advisable for the collection of all or any part
of the Collateral; and (iv) to execute, in connection with any sale or
disposition of the Collateral hereunder, any endorsements, assignments, bills of
sale or other instruments of conveyance or transfer with respect to all or any
part of the Collateral.
2
<PAGE>
e. Special Provisions Relating to Stock Collateral.
i. So long as no Event of Default shall have
occurred and be continuing, the Obligor shall have the right to exercise all
voting, consensual and other powers of ownership pertaining to the Stock
Collateral; and Netgateway shall, at the Obligor's expense, execute and deliver
to the Obligor or cause to be executed and delivered to the Obligor all such
proxies, powers of attorney, dividend and other orders and other instruments,
without recourse, as the Obligor may reasonably request for the purpose of
enabling the Obligor to exercise the rights and powers which it is entitled to
exercise pursuant to this Section 2.e.
ii. So long as no Event of Default shall have
occurred and be continuing, the Obligor shall be entitled to receive and retain
any dividends on the Stock Collateral paid in cash out of earned surplus.
iii. If any Event of Default shall have occurred
and be continuing, and whether or not Netgateway exercises any available right
to declare any Secured Obligation due and payable or seeks or pursues any other
right, remedy, power or privilege available to it under applicable law, this
Agreement or the Note, all dividends and other distributions on the Stock
Collateral shall be paid directly to Netgateway and retained by it as part of
the Stock Collateral, subject to the terms of this Agreement, and, if Netgateway
shall so request, the Obligor agrees to execute and deliver to Netgateway
appropriate additional dividend, distribution and other orders and instruments
to that end, provided that if such Event of Default is cured, any such dividend
or distribution paid to Netgateway prior to such cure shall, upon request of the
Obligor (except to the extent applied to the Secured Obligations), be returned
by Netgateway to the Obligor.
f. Collateral Protection. If, on any date following
the date of this Agreement and the Note (the "Calculation Date"), the arithmetic
mean of the closing bid price of the common stock as reported on the OTC
Bulletin Board for the 5 consecutive trading days ending on the trading day
preceding the Calculation Date (the "Calculated Price") is equal to or less than
75% of the closing bid price of the common stock of Galaxy on the date of this
Agreement and the Note (the "Closing Price"), then within 10 days after the
Calculation Date, Obligor shall deliver to Netgateway certificates representing
an additional number of shares of Galaxy's common stock equal to (i) the
difference, in dollars, between the Closing Price and the Calculated Price,
multiplied by the number of shares of the common stock of Galaxy representing
the Stock Collateral, divided by (ii) the Calculated Price.
g. Termination. Galaxy and Netgateway intend to enter
into the Merger Agreement pursuant to which Galaxy Acquisition Corp. shall merge
with and into Galaxy and Galaxy will become a wholly-owned subsidiary of
Netgateway (the "Transaction"). This Agreement shall terminate when (i) all
Secured Obligations shall have been paid in full, or (ii) all conditions
precedent to the Transaction shall have been satisfied or waived. Upon
termination of this Agreement, Netgateway shall forthwith cause to be assigned,
transferred and delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect of the Collateral, to or on the order of the Obligor.
3
<PAGE>
Section 2. Representations and Warranties. As of the date hereof, the
Obligor represents and warrants to Netgateway as follows:
a. Title. The Obligor is the sole beneficial owner of
the Collateral in which it purports to grant a lien pursuant to this Agreement,
and such Collateral is free and clear of all liens and other rights in favor of
any other person.
b. Pledged Stock. The Pledged Stock evidenced by the
certificates identified in Annex 1 is duly authorized, validly existing, fully
paid and nonassessable, and none of such Pledged Stock is subject to any
contractual restriction, or any restriction under the charter or by-laws of
Galaxy of such Pledged Stock, upon the transfer of such Pledged Stock.
c. No Breach. None of the execution and delivery of
this Agreement, the consummation of the transactions contemplated by this
Agreement or compliance with the terms and provisions of this Agreement will
conflict with or result in a breach of, or require any consent under any
applicable law, or any agreement or instrument to which the Obligor is a party
or by which he is bound or to which he is subject.
Section 3. Further Assurances. The Obligor agrees that, from time to
time upon the written request of Netgateway, the Obligor will execute and
deliver such further documents and do such other acts and things as Netgateway
may reasonably request in order fully to effect the purposes of this Agreement.
Section 4. Remedies.
a. Events of Default, Etc. Without limitation on the
rights, remedies, powers and privileges of Netgateway under Section 1, if any
Event of Default shall have occurred and be continuing:
i. Netgateway in its discretion may, in its name
or in the name of the Obligor or otherwise, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of or in
exchange for all or any part of the Collateral, but shall be under no obligation
to do so;
4
<PAGE>
ii. Netgateway in its discretion may, upon five
business days' prior written notice to the Obligor of the time and place, with
respect to all or any part of the Collateral which shall then be or shall
thereafter come into the possession, custody or control of Netgateway or any of
its agents, sell, lease or otherwise dispose of all or any part of such
Collateral, at such place or places as Netgateway deems best, for cash, for
credit or for future delivery (without thereby assuming any credit risk) and at
public or private sale, without demand of performance or notice of intention to
effect any such disposition or of time or place of any such sale (except such
notice as is required above or by applicable statute and cannot be waived), and
Netgateway or any other person may be the purchaser, lessee or recipient of any
or all of the Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale) and thereafter hold the same absolutely,
free from any claim or right of whatsoever kind, including any right or equity
of redemption (statutory or otherwise), of the Obligor, any such demand, notice
and right or equity being hereby expressly waived and released. Netgateway may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
sale may be so adjourned; and
iii. Netgateway shall have, and in its discretion
may exercise, all of the rights, remedies, powers and privileges with respect to
the Collateral of a secured party under the Uniform Commercial Code (whether or
not the Uniform Commercial Code is in effect in the jurisdiction where such
rights, remedies, powers and privileges are asserted) and such additional
rights, remedies, powers and privileges to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights, remedies, powers
and privileges in respect of this Agreement or the Collateral may be asserted,
including the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the Collateral as
if Netgateway were the sole and absolute owner of the Collateral (and the
Obligor agrees to take all such action as may be appropriate to give effect to
such right).
b. Limitation on Personal Liability of the Obligor.
Notwithstanding anything herein to the contrary, the Obligor shall have no
personal liability with respect to the payment or performance (or lack thereof)
of the Secured Obligations, provided, however, that the foregoing shall not
limit or restrict the right of Netgateway to proceed against the Collateral to
the extent provided herein and shall also not impair any other rights that
Netgateway may have hereunder or under the Note (so long as such rights do not
give rise to personal liability of the Obligor).
c. Private Sale.
i. Netgateway shall incur no liability as a result
of the sale, lease or other disposition of all or any part of the Collateral at
any private sale conducted in a commercially reasonable manner. The Obligor
hereby waives any claims against Netgateway arising by reason of the fact that
the price at which the Collateral may have been sold at such a private sale was
less than the price which might have been obtained at a public sale or was less
than the aggregate amount of the Secured Obligations, even if Netgateway accepts
the first offer received and does not offer the Collateral to more than one
offeree.
ii. The Obligor recognizes that, by reason of
certain prohibitions contained in the Securities Act of 1933 and applicable
state securities laws, Netgateway may be compelled, with respect to any sale of
all or any part of the Collateral, to limit purchasers to those who will agree,
among other things, to acquire the Collateral for their own account, for
investment and not with a view to distribution or resale. The Obligor
acknowledges that any such private sales may be at prices and on terms less
favorable to Netgateway than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner and that pursuant to Netgateway shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit Galaxy to register it for public sale.
5
<PAGE>
d. Application of Proceeds. Except as otherwise
expressly provided in this Agreement, the proceeds of, or other realization
upon, all or any part of the Collateral by virtue of the exercise of remedies
hereunder, and any other cash at the time held by Netgateway hereunder, shall be
applied by Netgateway:
First, to the payment of the costs and expenses of such
exercise of remedies, including reasonable out-of-pocket costs and expenses of
Netgateway, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by Netgateway in that regard;
Next, to the payment in full of the remaining Secured
Obligations in such manner as Netgateway may determine; and
Finally, to the payment to the Obligor, or its respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
As used in this Section, "proceeds" of Collateral shall mean
cash, securities and other property realized in respect of, and distributions in
kind of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer of,
or account debtor or other obligor on, any of the Collateral.
Section 5. Miscellaneous.
a. Waiver. No failure on the part of Netgateway to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, remedy, power or privilege under this Agreement shall operate as a
waiver of such right, remedy, power or privilege, nor shall any single or
partial exercise of any right, remedy, power or privilege under this Agreement,
preclude any other or further exercise of any such right, remedy, power or
privilege or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges provided in this Agreement are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
b. Notices. All notices and communications to be
given under this Agreement shall be given or made in writing to the intended
recipient at the address specified below or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telex or telecopier,
delivered to the telegraph or cable office or personally delivered or, in the
case of a mailed notice, upon receipt, in each case, given or addressed as
provided in this Section 5.b:
6
<PAGE>
To the Obligor: John J. Poelman
c/o Galaxy Enterprises, Inc.
754 East Technology Avenue
Orem, Utah 84907
Facsimile No.: (801) 228-9762
with a copy to: Parsons Behle & Latimer, P.C.
One Utah Center
201 South Main Street, Suite 1800
P.O. Box 45898
Salt Lake City, UT 84145-0898
Attn: Brent Christensen, Esq.
Facsimile No.: (801) 536-6111
To Netgateway: Netgateway, Inc.
300 Oceangate, 5th Floor
Long Beach, CA 90802
Attention: Craig Gatarz
Facsimile No.: (562) 308-0021
with a copy to: Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Attn: C. Thomas Hopkins, Esq.
Facsimile No.: (805) 568-1955
c. Expenses, Etc. The Obligor agrees to pay or to
reimburse Netgateway for all costs and expenses (including reasonable attorney's
fees and expenses) that may be incurred by Netgateway in any effort to enforce
any of the provisions hereof or in respect of the Collateral or in connection
with (a) the preservation of the lien of, or the rights of Netgateway under this
Agreement or (b) any actual or attempted sale, lease, disposition, exchange,
collection, compromise, settlement or other realization in respect of, or care
of, the Collateral, including all such costs and expenses (and reasonable
attorney's fees and expenses) incurred in any bankruptcy, reorganization,
workout or other similar proceeding.
d. Amendments, Etc. Any provision of this Agreement
may be modified, supplemented or waived only by an instrument in writing duly
executed by the Obligor and Netgateway. Any such modification, supplement or
waiver shall be for such period and subject to such conditions as shall be
specified in the instrument effecting the same and shall be binding upon
Netgateway, each holder of any of the Secured Obligations and the Obligor, and
any such waiver shall be effective only in the specific instance and for the
purposes for which given.
7
<PAGE>
e. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the Obligor, Netgateway and each holder
of any of the Secured Obligations and their respective successors and permitted
assigns. The Obligor shall not assign or transfer its rights under this
Agreement without the prior written consent of Netgateway.
f. Survival. All representations and warranties made
in this Agreement or in any certificate or other document delivered pursuant to
or in connection with this Agreement shall survive the execution and delivery of
this Agreement or such certificate or other document (as the case may be) or any
deemed repetition of any such representation or warranty.
g. Agreements Superseded. This Agreement supersedes
all prior agreements and understandings, written or oral, among the parties with
respect to the subject matter of this Agreement.
h. Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
i. Captions. The captions and section headings
appearing in this Agreement are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
j. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties to this Agreement may execute this
Agreement by signing any such counterpart.
k. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the Obligor has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
OBLIGOR:
/s/ John J. Poelman
---------------------------
JOHN J. POELMAN
9
<PAGE>
ANNEX 1
PLEDGED STOCK
<TABLE>
<CAPTION>
Certificate Registered
Issuer No. Owner Number of Shares
- ------ ----------- ----------- ----------------
<S> <C> <C>
Galaxy Enterprises 1445 John J. Poelman 100,000
1446 100,000
-------
Total: 200,000
</TABLE>
10
<PAGE>
Exhibit 10.5
PROMISSORY NOTE
$300,000.00 January 7, 2000
GALAXY ENTERPRISES, INC., a Nevada corporation ("Galaxy") and JOHN J.
POELMAN, in his individual capacity ("Poelman" and together with Galaxy,
collectively and jointly and severally, "Maker") and NETGATEWAY, INC., a
Delaware corporation ("Holder") hereby agree as follows:
1. Principal.
For value received, Maker, jointly and severally, promises to pay to
the order of Holder, at its offices at 300 Oceangate, 5th Floor, Long Beach,
California 90802, or at such other place as Holder may from time to time
designate in writing, the principal sum of Three Hundred Thousand and No One
Hundredths Dollars ($300,000.00), together with accrued interest from the date
of disbursement hereunder on the unpaid principal at the rate set forth in
Paragraph 4. As used herein, the term "Holder" shall mean Holder and any
subsequent holder of this Promissory Note (this "Note"), whichever is applicable
from time to time.
On the date hereof, Holder shall disburse Three Hundred Thousand and
No One Hundredths Dollars ($300,000) to Maker, pursuant to the terms hereof.
2. Maturity Date.
Galaxy and Holder intend to enter into the Merger Agreement pursuant
to which Galaxy Acquisition Corp. shall merge with and into Galaxy and Galaxy
will become a wholly-owned subsidiary of Holder (the "Transaction"). The unpaid
principal balance hereof, together with all unpaid interest accrued thereon,
shall be due and payable on June 1, 2000 or such earlier date, if any, that the
Transaction shall have been consummated (the "Maturity Date").
3. Prepayment.
This Note may be prepaid in full or in part, at any time without
penalty, upon not less than one business days' prior written notice to Holder.
Maker shall have no right to reborrow any such prepaid amounts.
4. Interest.
All interest on the outstanding principal balance hereof shall be
due and payable on the Maturity Date. The outstanding principal balance hereof
shall bear interest at a rate of 9.5% per annum. All payments of principal of
and interest on the Note shall be made without deduction of any present and
future taxes, levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Maker. Maker will pay the amounts necessary such that
the gross amount of the principal and interest received by Holder is not less
than that required by this Note. All stamp and documentary taxes shall be paid
by Maker. If, notwithstanding the foregoing, Holder pays such taxes, Maker
<PAGE>
will reimburse Holder for the amount paid. Maker will furnish Holder official
tax receipts or other evidence of payment of all taxes. Throughout the term of
this Note, interest shall be calculated on a 360-day year, but shall be computed
for the actual number of days in the period for which interest is charged.
5. Manner of Payment.
Principal and interest are payable in lawful money of the United
States of America. All payments of principal and interest on the Note shall be
made to Holder in immediately available funds not later than 11:30 a.m. Los
Angeles time on the dates such payments are to be made. Any payment received
after 11:30 a.m. shall be deemed received by Holder on the next business day.
6. Applications of Payments.
Payments received by Holder pursuant to the terms hereof shall be
applied first to the payment of all interest accrued to the date of such payment
and second to the payment of principal. Notwithstanding anything to the contrary
contained herein, after the occurrence and during the continuation of an Event
of Default (as hereinafter defined), all amounts received by Holder from any
party shall be applied in such order as Holder, in its sole discretion, may
elect.
7. Security.
This Note is secured by a Pledge Agreement of even date herewith,
executed by Poelman in favor of Holder. Prior to the date hereof, Maker shall
have provided Holder with certified resolutions of the Board of Directors of
Maker approving the loan evidenced by this Note and the Pledge Agreement.
8. Events of Default.
The occurrence of any of the following shall be deemed to be an event
of default ("Event of Default") hereunder:
(a) Holder shall have notified Maker in writing of a default in the
payment of principal or interest when due pursuant to the terms hereof;
(b) If, on any date following the date of this Note and the Pledge
Agreement (the "Calculation Date"), the arithmetic mean of the closing
bid price of the common stock as reported on the OTC Bulletin Board for
the 5 consecutive trading days ending on the trading day preceding the
Calculation Date (the "Calculated Price") is equal to or less than 75%
of the closing bid price of the common stock of the Company on the date
of this Note and the Pledge Agreement (the "Closing Price"), and,
within 10 days after the Calculation Date, Poelman shall have failed to
deliver to Netgateway certificates representing an additional number of
shares of Galaxy's common stock equal to (i) the difference, in
dollars, between the Closing Price and the Calculated Price, multiplied
-2-
<PAGE>
by the number of shares of the common stock of Galaxy representing the
Stock Collateral, divided by (ii) the Calculated Price; or
(b) the occurrence of an Event of Default under the Pledge Agreement
now or hereafter securing this Note.
9. Remedies; Post-Default Rate; Late Charge.
Upon the occurrence of an Event of Default and without demand or
notice, Holder shall have the option to declare the entire balance of principal
together with all accrued interest thereon immediately due and payable and to
exercise all rights and remedies available to it under the Pledge Agreement or
applicable law. Notwithstanding any provision of this Note or the Pledge
Agreement to the contrary, any principal, accrued interest, and other amounts
payable under this Note or the Pledge Agreement which remain unpaid after the
Maturity Date or any acceleration of this Note, shall bear interest at a rate
per annum equal to 14.5% (the "Post-Default Rate"). If any payment under this
Note (whether of principal or interest or both and including the payment due on
the Maturity Date or upon any acceleration of this Note) is not paid within ten
(10) days after the date on which the payment is due, Maker shall pay to Holder,
in addition to the delinquent payment and without any requirement of notice or
demand by Holder, a late payment charge equal to five percent (5%) of such
delinquent amount. MAKER EXPRESSLY ACKNOWLEDGES AND AGREES THAT THE FOREGOING
ACCRUAL OF INTEREST AT THE POST-DEFAULT RATE AND LATE PAYMENT CHARGE PROVISION
IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS NOTE, THAT IT
WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO FIX HOLDER'S ACTUAL DAMAGES
ARISING OUT OF (i) ANY FAILURE TO PAY SUCH OUTSTANDING INDEBTEDNESS OF THIS NOTE
UPON THE MATURITY DATE OR UPON ANY ACCELERATION OF THIS NOTE AND (ii) ANY LATE
PAYMENT AND THAT INTEREST ACCRUED AT THE POST-DEFAULT RATE AND THE FOREGOING
LATE PAYMENT CHARGE SHALL BE PRESUMED TO BE THE ACTUAL AMOUNT OF SUCH DAMAGES
INCURRED BY HOLDER. The application of this default rate or late charge shall
not be interpreted or deemed to limit any of Holder's remedies hereunder or
thereunder. No delay or omission on the part of Holder hereof in exercising any
right under this Note or the Pledge Agreement shall operate as a waiver of such
right.
10. WAIVER.
MAKER HEREBY WAIVES DILIGENCE, PRESENTMENT, PROTEST AND DEMAND,
NOTICE OF PROTEST, DISHONOR AND NONPAYMENT OF THIS NOTE AND EXPRESSLY AGREES
THAT, WITHOUT IN ANY WAY AFFECTING THE LIABILITY OF MAKER HEREUNDER, HOLDER MAY
EXTEND ANY MATURITY DATE OR THE TIME FOR PAYMENT OF ANY INSTALLMENT DUE
HEREUNDER, ACCEPT SECURITY, RELEASE ANY PARTY LIABLE HEREUNDER AND RELEASE ANY
SECURITY NOW OR HEREAFTER SECURING THIS NOTE. MAKER FURTHER WAIVES, TO THE FULL
EXTENT PERMITTED BY LAW, THE RIGHT TO PLEAD ANY AND ALL STATUTES OF LIMITATIONS
AS A DEFENSE TO ANY DEMAND ON THIS NOTE, OR ON ANY DEED OF TRUST, PLEDGE
AGREEMENT, LEASE ASSIGNMENT, GUARANTY OR OTHER AGREEMENT NOW OR HEREAFTER
-3-
<PAGE>
SECURING THIS NOTE. MAKER ALSO EXPRESSLY AND UNCONDITIONALLY WAIVES, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY HOLDER ON THIS NOTE,
ANY AND EVERY RIGHT IT MAY HAVE TO (I) INJUNCTIVE RELIEF, (II) A TRIAL BY JURY,
(III) INTERPOSE ANY COUNTERCLAIM THEREIN AND (IV) HAVE THE SAME CONSOLIDATED
WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING HEREIN CONTAINED
SHALL PREVENT OR PROHIBIT MAKER FROM INSTITUTING OR MAINTAINING A SEPARATE
ACTION AGAINST HOLDER WITH RESPECT TO ANY ASSERTED CLAIM.
11. Attorneys' Fees.
If this Note is not paid when due or if any Event of Default
occurs, Maker promises to pay all costs of enforcement and collection, including
but not limited to, Holder's reasonable attorneys' fees, whether or not any
action or proceeding is brought to enforce the provisions hereof. Upon demand by
Holder, Maker shall also pay the reasonable fees and expenses of Holder's
counsel incurred in connection with the preparation of this Note and the Pledge
Agreement.
12. Severability.
Every provision of this Note is intended to be severable. In the
event any term or provision hereof is declared by a court of competent
jurisdiction, to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
13. Interest Rate Limitation.
It is the intent of Maker and Holder in the execution of this Note
and all other instruments securing this Note that the loan evidenced hereby
comply with the usury laws of the State of California. Holder and Maker
stipulate and agree that none of the terms and provisions contained herein shall
ever be construed to create a contract for use, forbearance or detention of
money requiring payment of interest at a rate in excess of the maximum interest
rate permitted to be charged by the laws of the State of California. In such
event, if any Holder of this Note shall collect monies which are deemed to
constitute interest which would otherwise increase the effective interest rate
on this Note to a rate in excess of the maximum rate permitted to be charged by
the laws of the State of California, all such sums deemed to constitute interest
in excess of such maximum rate shall, at the option of Holder, be credited to
the payment of the sums due hereunder or returned to Maker.
14. Number and Gender.
In this Note the singular shall include the plural and the
masculine shall include the feminine and neuter gender, and vice versa, if the
context so requires.
-4-
<PAGE>
15. Headings.
Headings at the beginning of each numbered Paragraph of this Note
are intended solely for convenience and are not to be deemed or construed to be
a part of this Note.
16. Choice of Law.
This Note shall be governed by and construed in accordance with the
law of the State of California.
IN WITNESS WHEREOF, Maker has executed this Promissory Note as of
the date first above written.
GALAXY ENTERPRISES, INC.,
a Nevada corporation
By: /s/ John J. Poelman
---------------------------------------
Name:
Title:
/s/ John J. Poelman
-------------------------------------------
JOHN J. POELMAN, in his individual capacity
-5-
<PAGE>
Exhibit 10.6
PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement") dated as of February
4, 2000 is made between JOHN J. POELMAN, in his individual capacity (the
"Obligor") and NETGATEWAY, INC., a Delaware corporation ("Netgateway").
(Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Note (as hereinafter defined).
R E C I T A L S:
WHEREAS, Netgateway will advance $150,000 to Obligor and
Galaxy Enterprises, Inc., a Nevada corporation ("Galaxy", and together with
Obligor, collectively, the "Maker") pursuant to that certain Promissory Note of
even date herewith (the "Note"), and may in the future advance additional sums
pursuant to terms of additional promissory note and other agreements. Netgateway
requires that the Obligor execute and deliver, and grant the Liens provided for
in, this Agreement prior to advancing any sums to Galaxy.
WHEREAS, Obligor is a founder, officer and shareholder of
Galaxy and will benefit substantially by reason of Netgateway's advancing sums
to Galaxy.
NOW, THEREFORE, to induce Netgateway to advance such sums and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Obligor has agreed to pledge and grant a security
interest in the Collateral as security for the performance of any and all
obligations of the Maker for the performance by it of its agreements, covenants
and undertakings under or in respect of the Note or this Agreement (the "Secured
Obligations").
Section 1. Pledge.
a. Grant. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) and
performance of the Secured Obligations, the Obligor hereby pledges and grants to
Netgateway a security interest in all of the Obligor's right, title and interest
in and to the following property, whether now owned or hereafter acquired by the
Obligor and whether now existing or hereafter coming into existence
(collectively, the "Collateral"):
i. 100,000 shares of common stock of Galaxy represented by
the respective certificates identified in Annex 1, together with the
certificates representing the same (collectively, the "Pledged Stock");
ii. all shares, securities, moneys or property representing
a dividend on, or a distribution or return of capital in respect of any of the
Pledged Stock, resulting from a split-up, revision, reclassification or other
like change of any of the Pledged Stock or otherwise received in exchange for
any of the Pledged Stock and all other rights issued to the holders of, or
otherwise in respect of, any of the Pledged Stock;
<PAGE>
iii. in the event of any consolidation or merger in which
Galaxy is not the surviving corporation, all shares of each class of the capital
stock of the successor corporation (unless such successor corporation is Galaxy
itself) formed by or resulting from such consolidation or merger (collectively,
and together with the property described in clauses (i) and (ii) above, the
"Stock Collateral")
b. Perfection. Concurrently with the execution and delivery of
this Agreement, the Obligor shall (i) deliver to Netgateway all certificates
identified in Annex 1, accompanied by undated stock powers duly executed in
blank and (ii) take all such other actions as shall be necessary or as
Netgateway may request to perfect and establish the priority of the liens
granted by this Agreement.
c. Preservation and Protection of Security Interests. The
Obligor shall:
i. upon the acquisition after the date hereof by the
Obligor of any Stock Collateral, promptly either (x) transfer and deliver to
Netgateway all such Stock Collateral (together with the certificates
representing such Stock Collateral securities duly endorsed in blank or
accompanied by undated stock powers duly executed in blank) or (y) take such
other action as Netgateway shall deem necessary or appropriate to perfect, and
establish the priority of, the liens granted by this Agreement in such Stock
Collateral; and
ii. give, execute, deliver, file or record any and all
financing statements, notices, contracts, agreements or other instruments,
obtain any and all governmental approvals and take any and all steps that may be
necessary or as Netgateway may request to create, perfect, establish the
priority of, or to preserve the validity, perfection or priority of the liens
granted by this Agreement or to enable Netgateway to exercise and enforce its
rights, remedies, powers and privileges under this Agreement with respect to
such liens, including causing any or all of the Stock Collateral to be
transferred of record into the name of Netgateway or its nominee (and Netgateway
agrees that if any Stock Collateral is transferred into its name or the name of
its nominee, Netgateway will thereafter promptly give to the Obligor copies of
any notices and communications received by it with respect to the Stock
Collateral pledged by the Obligor).
d. Attorney-in-Fact. Subject to the rights of the Obligor
hereunder, Netgateway is hereby appointed the attorney-in-fact of the Obligor
for the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instruments which Netgateway may deem necessary or
advisable to accomplish the purposes of this Agreement, to preserve the
validity, perfection and priority of the liens granted by this Agreement and,
following any Event of Default (as defined in the Note), to exercise its rights,
remedies, powers and privileges under this Agreement. This appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, Netgateway shall be entitled under this
Agreement upon the occurrence and continuation of any Event of Default (i) to
ask, demand, collect, sue for, recover, receive and give receipt and discharge
for amounts due and to become due under and in respect of all or any part of the
Collateral; (ii) to receive, endorse and collect any instruments or other
drafts, instruments, documents and chattel paper in connection with clause (i)
above; (iii) to file any claims or take any action or proceeding that Netgateway
may deem necessary or advisable for the collection of all or any part of the
Collateral; and (iv) to execute, in connection with any sale or disposition of
2
<PAGE>
the Collateral hereunder, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Collateral.
e. Special Provisions Relating to Stock Collateral.
i. So long as no Event of Default shall have occurred and
be continuing, the Obligor shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Stock Collateral; and
Netgateway shall, at the Obligor's expense, execute and deliver to the Obligor
or cause to be executed and delivered to the Obligor all such proxies, powers of
attorney, dividend and other orders and other instruments, without recourse, as
the Obligor may reasonably request for the purpose of enabling the Obligor to
exercise the rights and powers which it is entitled to exercise pursuant to this
Section 2.e.
ii. So long as no Event of Default shall have occurred and
be continuing, the Obligor shall be entitled to receive and retain any dividends
on the Stock Collateral paid in cash out of earned surplus.
iii. If any Event of Default shall have occurred and be
continuing, and whether or not Netgateway exercises any available right to
declare any Secured Obligation due and payable or seeks or pursues any other
right, remedy, power or privilege available to it under applicable law, this
Agreement or the Note, all dividends and other distributions on the Stock
Collateral shall be paid directly to Netgateway and retained by it as part of
the Stock Collateral, subject to the terms of this Agreement, and, if Netgateway
shall so request, the Obligor agrees to execute and deliver to Netgateway
appropriate additional dividend, distribution and other orders and instruments
to that end, provided that if such Event of Default is cured, any such dividend
or distribution paid to Netgateway prior to such cure shall, upon request of the
Obligor (except to the extent applied to the Secured Obligations), be returned
by Netgateway to the Obligor.
f. Collateral Protection. If, on any date following the date
of this Agreement and the Note (the "Calculation Date"), the arithmetic mean of
the closing bid price of the common stock as reported on the OTC Bulletin Board
for the 5 consecutive trading days ending on the trading day preceding the
Calculation Date (the "Calculated Price") is equal to or less than 75% of the
closing bid price of the common stock of Galaxy on the date of this Agreement
and the Note (the "Closing Price"), then within 10 days after the Calculation
Date, Obligor shall deliver to Netgateway certificates representing an
additional number of shares of Galaxy's common stock equal to (i) the
difference, in dollars, between the Closing Price and the Calculated Price,
multiplied by the number of shares of the common stock of Galaxy representing
the Stock Collateral, divided by (ii) the Calculated Price.
g. Termination. Galaxy and Netgateway intend to enter into the
Merger Agreement pursuant to which Galaxy Acquisition Corp. shall merge with and
into Galaxy and Galaxy will become a wholly-owned subsidiary of Netgateway (the
"Transaction"). This Agreement shall terminate when (i) all Secured Obligations
shall have been paid in full, or (ii) all conditions precedent to the
3
<PAGE>
Transaction shall have been satisfied or waived. Upon termination of this
Agreement, Netgateway shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or representation
whatsoever, any remaining Collateral and money received in respect of the
Collateral, to or on the order of the Obligor.
Section 2. Representations and Warranties. As of the date hereof, the
Obligor represents and warrants to Netgateway as follows:
a. Title. The Obligor is the sole beneficial owner of the
Collateral in which it purports to grant a lien pursuant to this Agreement, and
such Collateral is free and clear of all liens and other rights in favor of any
other person.
b. Pledged Stock. The Pledged Stock evidenced by the
certificates identified in Annex 1 is duly authorized, validly existing, fully
paid and nonassessable, and none of such Pledged Stock is subject to any
contractual restriction, or any restriction under the charter or by-laws of
Galaxy of such Pledged Stock, upon the transfer of such Pledged Stock.
c. No Breach. None of the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement
or compliance with the terms and provisions of this Agreement will conflict with
or result in a breach of, or require any consent under any applicable law, or
any agreement or instrument to which the Obligor is a party or by which he is
bound or to which he is subject.
Section 3. Further Assurances. The Obligor agrees that, from time to
time upon the written request of Netgateway, the Obligor will execute and
deliver such further documents and do such other acts and things as Netgateway
may reasonably request in order fully to effect the purposes of this Agreement.
Section 4. Remedies.
a. Events of Default, Etc. Without limitation on the rights,
remedies, powers and privileges of Netgateway under Section 1, if any Event of
Default shall have occurred and be continuing:
i. Netgateway in its discretion may, in its name or in the
name of the Obligor or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in exchange for
all or any part of the Collateral, but shall be under no obligation to do so;
ii. Netgateway in its discretion may, upon five business
days' prior written notice to the Obligor of the time and place, with respect to
all or any part of the Collateral which shall then be or shall thereafter come
into the possession, custody or control of Netgateway or any of its agents,
sell, lease or otherwise dispose of all or any part of such Collateral, at such
place or places as Netgateway deems best, for cash, for credit or for future
delivery (without thereby assuming any credit risk) and at public or private
sale, without demand of performance or notice of intention to effect any such
disposition or of time or place of any such sale (except such notice as is
required above or by applicable statute and cannot be waived), and Netgateway or
4
<PAGE>
any other person may be the purchaser, lessee or recipient of any or all of the
Collateral so disposed of at any public sale (or, to the extent permitted by
law, at any private sale) and thereafter hold the same absolutely, free from any
claim or right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise), of the Obligor, any such demand, notice and right or
equity being hereby expressly waived and released. Netgateway may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the sale may
be so adjourned; and
iii. Netgateway shall have, and in its discretion may
exercise, all of the rights, remedies, powers and privileges with respect to the
Collateral of a secured party under the Uniform Commercial Code (whether or not
the Uniform Commercial Code is in effect in the jurisdiction where such rights,
remedies, powers and privileges are asserted) and such additional rights,
remedies, powers and privileges to which a secured party is entitled under the
laws in effect in any jurisdiction where any rights, remedies, powers and
privileges in respect of this Agreement or the Collateral may be asserted,
including the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the Collateral as
if Netgateway were the sole and absolute owner of the Collateral (and the
Obligor agrees to take all such action as may be appropriate to give effect to
such right).
b. Limitation on Personal Liability of the Obligor.
Notwithstanding anything herein to the contrary, the Obligor shall have no
personal liability with respect to the payment or performance (or lack thereof)
of the Secured Obligations, provided, however, that the foregoing shall not
limit or restrict the right of Netgateway to proceed against the Collateral to
the extent provided herein and shall also not impair any other rights that
Netgateway may have hereunder or under the Note (so long as such rights do not
give rise to personal liability of the Obligor).
c. Private Sale.
i. Netgateway shall incur no liability as a result of the
sale, lease or other disposition of all or any part of the Collateral at any
private sale conducted in a commercially reasonable manner. The Obligor hereby
waives any claims against Netgateway arising by reason of the fact that the
price at which the Collateral may have been sold at such a private sale was less
than the price which might have been obtained at a public sale or was less than
the aggregate amount of the Secured Obligations, even if Netgateway accepts the
first offer received and does not offer the Collateral to more than one offeree.
ii. The Obligor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933 and applicable state
securities laws, Netgateway may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to distribution or resale. The Obligor acknowledges that any
such private sales may be at prices and on terms less favorable to Netgateway
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that pursuant
5
<PAGE>
to Netgateway shall have no obligation to engage in public sales and no
obligation to delay the sale of any Collateral for the period of time necessary
to permit Galaxy to register it for public sale.
d. Application of Proceeds. Except as otherwise expressly
provided in this Agreement, the proceeds of, or other realization upon, all or
any part of the Collateral by virtue of the exercise of remedies hereunder, and
any other cash at the time held by Netgateway hereunder, shall be applied by
Netgateway:
First, to the payment of the costs and expenses of such exercise
of remedies, including reasonable out-of-pocket costs and expenses of
Netgateway, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by Netgateway in that regard;
Next, to the payment in full of the remaining Secured Obligations
in such manner as Netgateway may determine; and
Finally, to the payment to the Obligor, or its respective
successors or assigns, or as a court of competent jurisdiction may direct, of
any surplus then remaining.
As used in this Section, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer of,
or account debtor or other obligor on, any of the Collateral.
Section 5. Miscellaneous.
a. Waiver. No failure on the part of Netgateway to exercise
and no delay in exercising, and no course of dealing with respect to, any right,
remedy, power or privilege under this Agreement shall operate as a waiver of
such right, remedy, power or privilege, nor shall any single or partial exercise
of any right, remedy, power or privilege under this Agreement, preclude any
other or further exercise of any such right, remedy, power or privilege or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges provided in this Agreement are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
b. Notices. All notices and communications to be given under
this Agreement shall be given or made in writing to the intended recipient at
the address specified below or, as to any party, at such other address as shall
be designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier, delivered to the telegraph
or cable office or personally delivered or, in the case of a mailed notice, upon
receipt, in each case, given or addressed as provided in this Section 5.b:
6
<PAGE>
To the Obligor: John J. Poelman
c/o Galaxy Enterprises, Inc.
754 East Technology Avenue
Orem, Utah 84907
Facsimile No.: (801) 228-9762
with a copy to: Parsons Behle & Latimer, P.C.
One Utah Center
201 South Main Street, Suite 1800
P.O. Box 45898
Salt Lake City, UT 84145-0898
Attn: Brent Christensen, Esq.
Facsimile No.: (801) 536-6111
To Netgateway: Netgateway, Inc.
300 Oceangate, 5th Floor
Long Beach, CA 90802
Attention: Craig Gatarz
Facsimile No.: (562) 308-0021
with a copy to: Nida & Maloney, LLP
800 Anacapa Street
Santa Barbara, CA 93101
Attn: C. Thomas Hopkins, Esq.
Facsimile No.: (805) 568-1955
c. Expenses, Etc. The Obligor agrees to pay or to reimburse
Netgateway for all costs and expenses (including reasonable attorney's fees and
expenses) that may be incurred by Netgateway in any effort to enforce any of the
provisions hereof or in respect of the Collateral or in connection with (a) the
preservation of the lien of, or the rights of Netgateway under this Agreement or
(b) any actual or attempted sale, lease, disposition, exchange, collection,
compromise, settlement or other realization in respect of, or care of, the
Collateral, including all such costs and expenses (and reasonable attorney's
fees and expenses) incurred in any bankruptcy, reorganization, workout or other
similar proceeding.
d. Amendments, Etc. Any provision of this Agreement may be
modified, supplemented or waived only by an instrument in writing duly executed
by the Obligor and Netgateway. Any such modification, supplement or waiver shall
be for such period and subject to such conditions as shall be specified in the
instrument effecting the same and shall be binding upon Netgateway, each holder
of any of the Secured Obligations and the Obligor, and any such waiver shall be
effective only in the specific instance and for the purposes for which given.
e. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Obligor, Netgateway and each holder of any
7
<PAGE>
of the Secured Obligations and their respective successors and permitted
assigns. The Obligor shall not assign or transfer its rights under this
Agreement without the prior written consent of Netgateway.
f. Survival. All representations and warranties made in this
Agreement or in any certificate or other document delivered pursuant to or in
connection with this Agreement shall survive the execution and delivery of this
Agreement or such certificate or other document (as the case may be) or any
deemed repetition of any such representation or warranty.
g. Agreements Superseded. This Agreement supersedes all prior
agreements and understandings, written or oral, among the parties with respect
to the subject matter of this Agreement.
h. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
i. Captions. The captions and section headings appearing in
this Agreement are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
j. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties to this Agreement may execute this Agreement
by signing any such counterpart.
k. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
[signature page follows]
8
<PAGE>
IN WITNESS WHEREOF, the Obligor has caused this Agreement to
be duly executed and delivered as of the day and year first above written.
OBLIGOR:
/s/ John J. Poelman
----------------------------
JOHN J. POELMAN
9
<PAGE>
ANNEX 1
PLEDGED STOCK
-------------
Certificate Registered
Issuer No. Owner Number of Shares
- ------ ----------- ---------- ----------------
Galaxy Enterprises John J. Poelman 100,000
Total: 100,000
10
<PAGE>
PROMISSORY NOTE
$150,000.00 February 4, 2000
GALAXY ENTERPRISES, INC., a Nevada corporation ("Galaxy") and JOHN J.
POELMAN, in his individual capacity ("Poelman" and together with Galaxy,
collectively and jointly and severally, "Maker") and NETGATEWAY, INC., a
Delaware corporation ("Holder") hereby agree as follows:
1. Principal.
For value received, Maker, jointly and severally, promises to pay
to the order of Holder, at its offices at 300 Oceangate, 5th Floor, Long Beach,
California 90802, or at such other place as Holder may from time to time
designate in writing, the principal sum of One Hundred Fifty Thousand and No One
Hundredths Dollars ($150,000.00), together with accrued interest from the date
of disbursement hereunder on the unpaid principal at the rate set forth in
Paragraph 4. As used herein, the term "Holder" shall mean Holder and any
subsequent holder of this Promissory Note (this "Note"), whichever is applicable
from time to time.
On the date hereof, Holder shall disburse One Hundred Fifty
Thousand and No One Hundredths Dollars ($150,000) to Maker, pursuant to the
terms hereof.
2. Maturity Date.
Galaxy and Holder intend to enter into the Merger Agreement
pursuant to which Galaxy Acquisition Corp. shall merge with and into Galaxy and
Galaxy will become a wholly-owned subsidiary of Holder (the "Transaction"). The
unpaid principal balance hereof, together with all unpaid interest accrued
thereon, shall be due and payable on June 1, 2000 or such earlier date, if any,
that the Transaction shall have been consummated (the "Maturity Date").
3. Prepayment.
This Note may be prepaid in full or in part, at any time without
penalty, upon not less than one business days' prior written notice to Holder.
Maker shall have no right to reborrow any such prepaid amounts.
4. Interest.
All interest on the outstanding principal balance hereof shall be
due and payable on the Maturity Date. The outstanding principal balance hereof
shall bear interest at a rate of 9.5% per annum. All payments of principal of
and interest on the Note shall be made without deduction of any present and
future taxes, levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Maker. Maker will pay the amounts necessary such that
the gross amount of the principal and interest received by Holder is not less
than that required by this Note. All stamp and documentary taxes shall be paid
by Maker. If, notwithstanding the foregoing, Holder pays such taxes, Maker will
<PAGE>
reimburse Holder for the amount paid. Maker will furnish Holder official tax
receipts or other evidence of payment of all taxes. Throughout the term of this
Note, interest shall be calculated on a 360-day year, but shall be computed for
the actual number of days in the period for which interest is charged.
5. Manner of Payment.
Principal and interest are payable in lawful money of the United
States of America. All payments of principal and interest on the Note shall be
made to Holder in immediately available funds not later than 11:30 a.m. Los
Angeles time on the dates such payments are to be made. Any payment received
after 11:30 a.m. shall be deemed received by Holder on the next business day.
6. Applications of Payments.
Payments received by Holder pursuant to the terms hereof shall be
applied first to the payment of all interest accrued to the date of such payment
and second to the payment of principal. Notwithstanding anything to the contrary
contained herein, after the occurrence and during the continuation of an Event
of Default (as hereinafter defined), all amounts received by Holder from any
party shall be applied in such order as Holder, in its sole discretion, may
elect.
7. Security.
This Note is secured by (i) a Pledge Agreement dated as of January
7, 2000, executed by Poelman in favor of Holder and (ii) a Pledge Agreement
dated of even date herewith, executed by Poelman in favor of Holder
(collectively, the "Pledge Agreements"). Prior to the date hereof, Maker shall
have provided Holder with certified resolutions of the Board of Directors of
Maker approving the loan evidenced by this Note and the Pledge Agreement. The
Pledge Agreements specifically contemplate that subsequent advances may be made
by Holder to Maker which advances shall be secured by the Pledge Agreements.
8. Events of Default.
The occurrence of any of the following shall be deemed to be an
event of default ("Event of Default") hereunder:
(a) Holder shall have notified Maker in writing of a default in the
payment of principal or interest when due pursuant to the terms hereof;
(b) If, on any date following the date of this Note and the Pledge
Agreement (the "Calculation Date"), the arithmetic mean of the closing
bid price of the common stock as reported on the OTC Bulletin Board for
the 5 consecutive trading days ending on the trading day preceding the
Calculation Date (the "Calculated Price") is equal to or less than 75%
of the closing bid price of the common stock on the date of the Pledge
Agreement (the "Closing Price"), and, within 10 days after the
Calculation Date, Poelman shall have failed to deliver to Netgateway
certificates representing an additional number of
-2-
<PAGE>
shares of Galaxy's common stock equal to (i) the difference, in
dollars, between the Closing Price and the Calculated Price, multiplied
by the number of shares of the common stock of Galaxy representing the
Stock Collateral, divided by (ii) the Calculated Price; or
(b) the occurrence of an Event of Default under the Pledge
Agreement now or hereafter securing this Note.
9. Remedies; Post-Default Rate; Late Charge.
Upon the occurrence of an Event of Default and without demand or
notice, Holder shall have the option to declare the entire balance of principal
together with all accrued interest thereon immediately due and payable and to
exercise all rights and remedies available to it under the Pledge Agreements or
applicable law. Notwithstanding any provision of this Note or the Pledge
Agreements to the contrary, any principal, accrued interest, and other amounts
payable under this Note or the Pledge Agreements which remain unpaid after the
Maturity Date or any acceleration of this Note, shall bear interest at a rate
per annum equal to 14.5% (the "Post-Default Rate"). If any payment under this
Note (whether of principal or interest or both and including the payment due on
the Maturity Date or upon any acceleration of this Note) is not paid within ten
(10) days after the date on which the payment is due, Maker shall pay to Holder,
in addition to the delinquent payment and without any requirement of notice or
demand by Holder, a late payment charge equal to five percent (5%) of such
delinquent amount. MAKER EXPRESSLY ACKNOWLEDGES AND AGREES THAT THE FOREGOING
ACCRUAL OF INTEREST AT THE POST-DEFAULT RATE AND LATE PAYMENT CHARGE PROVISION
IS REASONABLE UNDER THE CIRCUMSTANCES EXISTING ON THE DATE OF THIS NOTE, THAT IT
WOULD BE EXTREMELY DIFFICULT AND IMPRACTICAL TO FIX HOLDER'S ACTUAL DAMAGES
ARISING OUT OF (i) ANY FAILURE TO PAY SUCH OUTSTANDING INDEBTEDNESS OF THIS NOTE
UPON THE MATURITY DATE OR UPON ANY ACCELERATION OF THIS NOTE AND (ii) ANY LATE
PAYMENT AND THAT INTEREST ACCRUED AT THE POST-DEFAULT RATE AND THE FOREGOING
LATE PAYMENT CHARGE SHALL BE PRESUMED TO BE THE ACTUAL AMOUNT OF SUCH DAMAGES
INCURRED BY HOLDER. The application of this default rate or late charge shall
not be interpreted or deemed to limit any of Holder's remedies hereunder or
thereunder. No delay or omission on the part of Holder hereof in exercising any
right under this Note or the Pledge Agreements shall operate as a waiver of such
right.
10. WAIVER.
MAKER HEREBY WAIVES DILIGENCE, PRESENTMENT, PROTEST AND DEMAND,
NOTICE OF PROTEST, DISHONOR AND NONPAYMENT OF THIS NOTE AND EXPRESSLY AGREES
THAT, WITHOUT IN ANY WAY AFFECTING THE LIABILITY OF MAKER HEREUNDER, HOLDER MAY
EXTEND ANY MATURITY DATE OR THE TIME FOR PAYMENT OF ANY INSTALLMENT DUE
HEREUNDER, ACCEPT SECURITY, RELEASE ANY PARTY LIABLE HEREUNDER AND RELEASE ANY
SECURITY NOW OR HEREAFTER SECURING THIS NOTE. MAKER FURTHER WAIVES, TO THE FULL
EXTENT PERMITTED BY LAW, THE RIGHT TO PLEAD ANY AND ALL STATUTES OF LIMITATIONS
AS A DEFENSE TO ANY DEMAND ON THIS NOTE, OR ON ANY DEED OF TRUST, PLEDGE
-3-
<PAGE>
AGREEMENT, LEASE ASSIGNMENT, GUARANTY OR OTHER AGREEMENT NOW OR HEREAFTER
SECURING THIS NOTE. MAKER ALSO EXPRESSLY AND UNCONDITIONALLY WAIVES, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY HOLDER ON THIS NOTE,
ANY AND EVERY RIGHT IT MAY HAVE TO (I) INJUNCTIVE RELIEF, (II) A TRIAL BY JURY,
(III) INTERPOSE ANY COUNTERCLAIM THEREIN AND (IV) HAVE THE SAME CONSOLIDATED
WITH ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING HEREIN CONTAINED
SHALL PREVENT OR PROHIBIT MAKER FROM INSTITUTING OR MAINTAINING A SEPARATE
ACTION AGAINST HOLDER WITH RESPECT TO ANY ASSERTED CLAIM.
11. Attorneys' Fees.
If this Note is not paid when due or if any Event of Default
occurs, Maker promises to pay all costs of enforcement and collection, including
but not limited to, Holder's reasonable attorneys' fees, whether or not any
action or proceeding is brought to enforce the provisions hereof. Upon demand by
Holder, Maker shall also pay the reasonable fees and expenses of Holder's
counsel incurred in connection with the preparation of this Note and the Pledge
Agreements.
12. Severability.
Every provision of this Note is intended to be severable. In the
event any term or provision hereof is declared by a court of competent
jurisdiction, to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
13. Interest Rate Limitation.
It is the intent of Maker and Holder in the execution of this Note
and all other instruments securing this Note that the loan evidenced hereby
comply with the usury laws of the State of California. Holder and Maker
stipulate and agree that none of the terms and provisions contained herein shall
ever be construed to create a contract for use, forbearance or detention of
money requiring payment of interest at a rate in excess of the maximum interest
rate permitted to be charged by the laws of the State of California. In such
event, if any Holder of this Note shall collect monies which are deemed to
constitute interest which would otherwise increase the effective interest rate
on this Note to a rate in excess of the maximum rate permitted to be charged by
the laws of the State of California, all such sums deemed to constitute interest
in excess of such maximum rate shall, at the option of Holder, be credited to
the payment of the sums due hereunder or returned to Maker.
14. Number and Gender.
In this Note the singular shall include the plural and the
masculine shall include the feminine and neuter gender, and vice versa, if the
context so requires.
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<PAGE>
15. Headings.
Headings at the beginning of each numbered Paragraph of this Note
are intended solely for convenience and are not to be deemed or construed to be
a part of this Note.
16. Choice of Law.
This Note shall be governed by and construed in accordance with the
law of the State of California.
IN WITNESS WHEREOF, Maker has executed this Promissory Note as of
the date first above written.
GALAXY ENTERPRISES, INC.,
a Nevada corporation
By: /s/ John J. Poelman
---------------------------------------
Name: John J. Poelman
Title: President
/s/ John J. Poelman
-------------------------------------------
JOHN J. POELMAN, in his individual capacity
-5-
<PAGE>
EMPLOYMENT AGREEMENT, dated as of December 15, 1999 (the "Agreement"),
between and among Netgateway, Inc., a corporation organized under the
laws of the State of Delaware (the "Company"), Netgateway, a
corporation organized under the laws of the State of Nevada and a
wholly owned subsidiary of the Company (the "Employer"), and Jill
Glashow Padwa (the "Executive").
- --------------------------------------------------------------------------------
The Company and the Employer desires to retain the Executive to supply
services to the Company and the Employer, and the Executive desires to provide
the services to the Company and the Employer, on the terms and subject to the
conditions set forth in this Agreement.
In consideration of (i) the Executive's agreement to supply the
services under this Agreement and (ii) the mutual agreements set forth below,
the adequacy and sufficiency of which is hereby acknowledged, the Company, the
Employer and the Executive agree as follows:
1. Services; Term.
(a) The Employer hereby employs the Executive, and the Executive
hereby agrees to be employed by the Employer, as Executive Vice President, Sales
and Marketing, and the Executive will use her best efforts to perform services
for the Employer in accordance with directions given to Executive from time to
time by the Board of Directors of the Company (the "Board"). The Executive is
being retained by the Employer, among other things, to: (a) develop and
implement a marketing strategy; (b) develop and implement a distribution
strategy; (c) manage relationships with industry consultants; (d) manage all
sales efforts, including but not limited to, sales personnel, budgets,
operations, forecasting, channel development and the sales process; and (e)
develop and manage all marketing communications for internal and external
audiences.
(b) The Executive shall participate in the operation of the business
of the Employer (the "Business"), and assume and perform all duties and
responsibilities consistent with her title and position (the "Services") as from
time to time requested by the Employer.
(c) The Executive shall be employed for the period commencing on the
date of this Agreement (the "Effective Date") and ending on December 15, 2001,
unless sooner terminated pursuant to the provisions of this Agreement (such
period being referred to as the "Employment Period"); provided, however, that on
the second anniversary of the Effective Date, the Employment Period shall
automatically be extended by an additional year, unless the Company, the
Employer or the Executive shall give the other party(ies) at least 90 days'
notice of its intent not to extend the term of this Agreement for an additional
year.
<PAGE>
2. Performance by Executive. During the Employment Period, the
Executive shall devote all of her business time, attention, knowledge and skills
to, and use her best efforts to perform, the Services and shall promote the
interests of the Employer in carrying out the Services. Other than the
restrictions contained in Sections 5 and 6 of this Agreement, nothing herein
shall be deemed to preclude the Executive from continuing to serve on the board
of directors of any business corporation or any charitable organization on which
she now serves or, subject to the prior approval of the Board, from accepting
appointment to additional boards of directors, provided that such activities do
not materially interfere with the performance of Executive's duties hereunder
and such activities are undertaken in compliance with the Company's Code of
Business Conduct.
3. Compensation and Benefits. During the Employment Period:
(a) Base Compensation. As compensation for the Services, the Company
shall pay Executive an annual base salary at the rate of $180,000 per year or
such higher amount as the Company's Compensation Committee (the "Committee") may
from time to time determine (the "Base Salary"), payable in accordance with the
Employer's payroll practices. The Base Salary shall be increased by no less than
$25,000 annually during the term of this Agreement, and subject to any
additional discretionary increase, as determined by an annual review by the
Committee on or prior to each anniversary of the Effective Date. The Employer
shall reimburse the Executive for all reasonable expenses incurred by her during
the term of this Agreement in accordance with the Employer's stated expense
reimbursement policy.
(b) Cash Bonus. (i) The Executive shall be entitled to a sign-on
bonus in the amount of $20,000 (less any applicable payroll and related taxes),
which shall be payable within the first payroll period after Executive has been
employed by the Company.
(ii) For each calendar year during the Employment Period
commencing on January 1, 2000, Executive shall be entitled to participate in any
annual bonus plan of the Company or the Employer and to receive an annual
performance bonus from the Company or the Employer in accordance with the terms
thereof.
(c) Stock Options. (i) The Executive will be granted options
pursuant to the Company's 1998 Executive Stock Option Plan (the "Options") to
purchase up to 100,000 shares of the common stock, par value $.01 per share, of
the Company, on terms and conditions to be embodied in a separate option
agreement between the Employer and the Executive (the "Option Agreement"), which
is annexed hereto as Exhibit A.
2
<PAGE>
(ii) The Executive shall be entitled to additional option grants
as follows: (x) options to purchase 20,000 shares of the common stock of the
Company for each fiscal quarter during the term of this Agreement that the
Executive meets her sales quota goals (the "Sales Goals"), which Sales Goals
shall be mutually agreed upon by the parties hereto; and (y) options to purchase
20,000 shares of common stock of the Company for each year during the term of
this Agreement in which the Executive shall meet the Sales Goals for the entire
year. Options granted pursuant to this Section 3(c)(ii) shall vest monthly over
a two year period from the date of grant. The exercise price of the options
granted pursuant to this Section 3(c)(ii) shall be fixed at a purchase price
equal to the lower of: (i) the fair market value of such shares as of the close
of business on the date on which such options are granted; or (ii) the closing
price of such shares as of the date on which the Compensation Committee approves
the grant of such options. All option grants made pursuant to this Section
3(c)(ii) shall be governed by separate option agreement to be dated as of the
date of such grant.
(d) Benefit Plans. The Executive shall be entitled to receive
benefits from the Employer consistent with those in effect for the Employer's
senior executives, as those benefits are revised from time to time by the Board
of Directors of the Employer. Except as specifically provided in this Section 3,
nothing contained herein is intended to require the Employer to maintain any
existing benefits or create any new benefits.
(e) Vacations and Holidays. The Executive shall be entitled to
vacation and paid holidays in accordance with the Employer's stated policy. In
any case, the Executive shall immediately vest in all holiday and vacation time
as of the Effective Date.
(f) Insurance and Related Benefits. Health insurance, disability
insurance, life insurance and other related benefits (collectively, "Insurance
Benefits") made available by the Company to other executives of the Company
shall be made available to the Executive. Upon termination of the Executive,
regardless of the reason for termination, Insurance Benefits shall be continued
for Executive at the expense of the Company for a period of no less than six
months and for such additional period as may be required by applicable law at
the expense of the Executive.
4. Termination.
(a) Death or Disability. If the Executive dies during the Employment
Period, the Employment Period shall terminate as of the date of the Executive's
death. If the Executive becomes unable to perform the Services for 180
consecutive days due to a physical or mental disability, (i) the Employer may
elect to terminate the Employment Period any time thereafter, and (ii) the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician acceptable to both the Employer
and the Executive, or, if the Employer and the Executive cannot agree upon a
physician within 15 days, then by a physician selected by physicians designated
by each of the Employer and the Executive. The Executive's failure to submit to
3
<PAGE>
any physical examination by such physician after such physician has given
reasonable notice of the time and place of such examination shall be conclusive
evidence of the Executive's inability to perform her duties hereunder.
(b) Cause. The Company or the Employer, at its option, may terminate
the Employment Period and all of the obligations of the Company and the Employer
under this Agreement for Cause. The Employer shall have "Cause" to terminate the
Executive's employment hereunder in the event of (i) the Executive's conviction
of, or plea of guilty or nolo contendere to a felony, (ii) the Executive's gross
negligence in the performance of the Services, which is not corrected within 15
business days after written notice, (iii) the Executive's knowingly dishonest
act, or knowing bad faith or wilful misconduct in the performance of the
Services to the material detriment of the Company, which is not corrected within
15 business days after written notice or (iv) the Executive's other material
breach of her obligations under this Agreement, which is not corrected within a
reasonable period of time (determined in light of the cure appropriate to such
material breach, but in no event less than 15 business days) after written
notice.
(c) Without Cause. The Company or the Employer, at its option, may
terminate the Employment Period without Cause at any time upon 30 days advance
written notice.
(d) Termination by Executive for Good Reason. The Executive may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined below) if the basis for such Good Reason is not cured
within a reasonable period of time (determined in light of the cure appropriate
to the basis of such Good Reason, but in no event less than 15 business days)
after the Employer receives written notice specifying the basis of such Good
Reason. "Good Reason" shall mean (i) the failure of the Employer to pay any
undisputed amount due under this Agreement or a substantial diminution in
benefits provided under this Agreement, (ii) a substantial diminution in status,
position and responsibilities of the Executive, (iii) the Employer requiring the
Executive to be based at any office or location that requires a relocation or
commute greater than 50 miles from the office or location to which the Executive
is currently assigned or (iv) the Employer's other material breach of its
obligations under this Agreement.
(e) Without Good Reason. The Executive, at her option, may terminate
the Employment Period without Good Reason at any time upon 30 days advance
written notice.
(f) Payments in the Event of Termination. Upon the termination of
the Employment Period for death, disability, by the Executive without Good
Reason, or by the Employer for Cause, the Employer shall pay to the Executive,
or her estate, as the case may be, the Base Salary and Performance Bonus earned
to the date of death or termination for disability or Cause, as the case may be.
In addition, all vested and unexercised Options shall remain exercisable by the
Executive for a period of 365 days. Upon the termination of the Employment
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Period by the Employer without Cause or by the Executive for Good Reason, the
Employer shall pay to the Executive (A) the Base Salary and Performance Bonus
earned to the date of such termination, and (B) an additional amount in a lump
sum in cash equal to the Base Salary at the time of termination for a period
beginning on the date of such termination, and ending on the date that the
Employment Period would have ended pursuant to this Agreement had there been no
termination of Executive's employment; provided, however, that such period shall
be calculated without taking into account any extensions as provided in Section
1.c; and provided, further, that in no event shall such period be less than
twelve months. In addition, all vested and unexercised Options shall become and
remain exercisable by the Executive until the expiration date of the Options
pursuant to the Option Agreement.
(g) Termination following a Change in Control. If, within the two
year period following a Change in Control (as defined below), (X) Executive's
employment is terminated by the Company or by the Employer for any reason other
than Executive's death or disability or for Cause, or (Y) Executive terminates
her employment for Good Reason, (i) the Company or the Employer shall pay
Executive as severance a lump sum amount equal to (A) two times the sum of (1)
Executive's then Base Salary plus (2) Executive's highest annual Performance
Bonus in the three year period immediately preceding such Change in Control and
(B) the present value of all other benefits otherwise payable through the then
remaining Employment Period under Sections 3(d) and 3(f) of this Agreement, and
(ii) all outstanding equity incentive awards shall immediately vest, and
Executive shall be entitled to receive a lump sum amount equal to the "spread"
on any then outstanding stock options or similar awards held by Executive in
exchange for the surrender and cancellation of such awards. "Spread" shall be
determined by the difference between the option price and the closing price of
the Company's stock on the day the Executive elects to surrender or cancel such
options. A Change in Control shall be deemed to have occurred if any of the
following conditions shall have been satisfied: (i) any "person" as such term is
used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company; any trustee or other
fiduciary holding securities under an employee benefit plan of the Company; or
any company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership at such time of stock of
the Company), is or becomes after the Effective Date the "beneficial owner" (as
defined in Rules 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company (not included in the securities beneficially owned by
such person any securities acquired directly from the Company) representing 35%
or more of the combined voting power of the Company's then outstanding
securities, (ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board of Directors, and any new director (other than a
director designated by a person who has entered into an agreement with the
Company to effect a transaction described within this definition of Change in
Control) whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of the
Board of Directors then still in office who either were members of the Board of
Directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
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a majority thereof, (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other entity and, in connection with such
merger or consolidation, individuals who constitute the Board of Directors
immediately prior to the time any agreement to effect such merger or
consolidation is entered into fail for any reason to constitute at least a
majority of the board of directors of the surviving corporation following the
consummation of such merger or consolidation, or (iv) the stockholders of the
Company approve (a) a plan of complete liquidation of the Company or (b) an
agreement for the sale or disposition by the Company of all or substantially all
the Company's assets.
(h) Excise Tax Gross Up. In the event any of the payments hereunder
shall become subject to the excise tax imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), or any similar or
successor provision of federal, state or local law, the Company or the Employer
shall pay to Executive such additional amounts as may be necessary to offset
fully the tax effects of such excise tax or taxes, in accordance with the
procedures set forth in Exhibit B hereto.
(i) Termination of Obligations. In the event of termination of the
Employment Period in accordance with this Section 4, all obligations of the
Employer and the Executive under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Sections 4(f), 4(g)
and 4(h) of this Agreement; provided, however, that notwithstanding anything to
the contrary in this Agreement, the provisions of Section 5 and Section 6 shall
survive such termination in accordance with their respective terms, and the
relevant provisions of Section 7 shall survive such termination indefinitely. In
the event of termination of the Employment Period in accordance with this
Section 4, the Executive agrees to cooperate with the Employer in order to
ensure an orderly transfer of the Executive's duties and responsibilities.
5. Confidentiality; Non-Disclosure.
(a) Except as provided in this Section 5(a), the Executive shall not
disclose any confidential or proprietary information of the Company and the
Employer or of their affiliates or subsidiaries to any person, firm,
corporation, association or other entity (other than the Company, the Employer,
their subsidiaries, officers or executives, attorneys, accountants, bank
lenders, agents, advisors or representatives thereof) for any reason or purpose
whatsoever (other than in the normal course of business on a need-to-know basis
after the Company or the Employer has received assurances that the confidential
or proprietary information shall be kept confidential), nor shall the Executive
make use of any such confidential or proprietary information for her own
purposes or for the benefit of any person, firm, corporation or other entity,
except the Company and the Employer. As used in this Section 5(a), the term
"confidential or proprietary information" means all information which is or
becomes known to the Executive and relates to matters such as trade secrets,
research and development activities, new or prospective lines of business
(including analysis and market research relating to potential expansion of the
business), books and records, financial data, customer lists, marketing
techniques, financing, credit policies, vendor lists, suppliers, purchases,
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potential business combinations, services procedures, pricing information and
private processes as they may exist from time to time; provided that the term
"confidential or proprietary information" shall not include information that is
or become generally available to the public (other than as a result of a
disclosure in violation of this Agreement by the Executive or by a person who
received such information from the Executive in violation of this Agreement).
(b) If the Executive is requested or (in the opinion of her counsel)
required by law or judicial order to disclose any confidential or proprietary
information, the Executive shall provide the Company or the Employer with prompt
notice of any such request or requirement so that the Company or the Employer
may seek an appropriate protective order or waiver of the Executive's compliance
with the provisions of Section 5(a). The Executive will not oppose any
reasonable action by, and will cooperate with, the Employer to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential or proprietary information. If,
failing the entry of a protective order or the receipt of a waiver hereunder,
she is, in the opinion of her counsel, compelled by law to disclose a portion of
the confidential or proprietary information, the Executive may disclose to the
relevant tribunal without liability hereunder only that portion of the
confidential or proprietary information which counsel advises the Executive she
is legally required to disclose, and each of the parties hereto agrees to
exercise such party's best efforts to obtain assurance that confidential
treatment will be accorded such confidential or proprietary information. During
the Employment Period, and for matters arising from events or circumstances
occurring during the Employment Period, the Company and the Employer will
provide for the defense of matters arising under this provision.
6. Non-Solicitation. The Executive agrees that she will not, during and
for the period commencing on the Effective Date and ending on the date that is
one year after the termination of the Employment Period, for any reason
whatsoever, either individually or as an officer, director, stockholder,
partner, agent or principal of another business firm, induce any executive or
employee of the Company, the Employer or any of their affiliates or subsidiaries
to terminate such person's employment with the Company, the Employer or such
affiliate or subsidiary or hire any executive or employee of the Company, the
Employer or any of their affiliates to work with any business affiliated with
the Executive; provided, however, that the provisions of this Section 6 shall
not apply in the event that the Company or the Employer materially breaches its
obligations under this Agreement.
7. General Provisions
(a) Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the
Executive, the Company and the Employer consider the restrictions contained in
this Agreement to be reasonable for the purpose of preserving the Employer's
goodwill and proprietary right, if any particular provision of this Agreement
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shall be adjudicated to be invalid or unenforceable, such provision shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. It
is expressly understood and agreed that although the Company, the Employer and
the Executive consider the restrictions contained in Section 6 to be reasonable,
if a final determination is made by a court of competent jurisdiction that the
time or territory or any other restriction contained in this Agreement is
unenforceable against the Executive, the provisions of this Agreement shall be
deemed amended to apply as to such maximum time and territory and to such
maximum extent as such court may judicially determine or indicate to be
enforceable.
(b) Remedies. The parties acknowledge that the Company's and the
Employer's damages at law would be an inadequate remedy for the breach by the
Executive of any provision of Section 5 or Section 6, and agree in the event of
such breach that the Company or the Employer may obtain temporary and permanent
injunctive relief restraining the Executive from such breach and, to the extent
permissible under the applicable statutes and rules of procedure, a temporary
injunction may be granted immediately upon the commencement of any such suit.
Nothing contained herein shall be construed as prohibiting the Company or the
Employer from pursuing any other remedies available at law or equity for such
breach or threatened breach of Section 5 or Section 6 of this Agreement.
(c) Withholding. The Employer shall withhold such amounts from any
compensation or other benefits referred to herein as payable to the Executive on
account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(d) Assignment; Benefit. This Agreement is personal in its nature
and the parties hereto shall not, without the written consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
provided that the provisions hereof shall inure to the benefit of, and be
binding upon, each successor of the Company and the Employer, whether by merger,
consolidation, transfer of all or substantially all of its assets, or otherwise.
(e) Indemnity. The Company and the Employer hereby agree to
indemnify and hold the Executive harmless consistent with the Company's and the
Employer's policy against any and all liabilities, expenses (including
reasonable attorneys' fees and costs), claims, judgements, fines, and amounts
paid in settlement actually and reasonably incurred in connection with any
proceeding arising out of the Executive's employment with the Employer (whether
civil, criminal, administrative or investigative, other than proceedings by or
in the right of the Company or the Employer), if, with respect to the actions at
issue in the proceeding, the Executive acted in good faith and in a manner
Executive reasonably believed to be in, or not opposed to, the best interests of
the Company and the Employer, and (with respect to any criminal action)
Executive had no reason to believe Executive's conduct was unlawful. Said
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indemnification arrangement shall (i) survive the termination of this Agreement,
(ii) apply to any and all qualifying acts of the Executive which have taken
place during any period in which she was employed by the Employer, irrespective
of the date of this Agreement or the term hereof, including, but not limited to,
any and all qualifying acts as an officer and/or director of any affiliate while
the Executive is employed by the Employer and (iii) be subject to any
limitations imposed from time to time under applicable law.
(f) Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
If to the Employer:
Netgateway
300 Oceangate, Suite 500
Long Beach, CA 90802
Attention: General Counsel
Facsimile: 562-308-0021
With a copy to
Netgateway, Inc.
300 Oceangate, Suite 500
Long Beach, CA 90802
Attention: General Counsel
Facsimile: 562-308-0021
If to the Executive:
Jill Glashow Padwa
25 Margrave Avenue
Providence, RI 02906
Telephone: 401-454-8888
Facsimile: 401-454-3533
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is mailed, such communication shall be deemed to have been
given on the fifth business day following the date on which such communication
is posted.
(g) Dispute Resolution; Attorneys' Fees. The Company, the Employer
and the Executive agree that any dispute arising as to the parties' rights and
obligations hereunder shall be resolved by binding arbitration before a private
judge to be determined by mutually agreeable means. In such event, each of the
Company, the Employer and the Executive shall have the right to full discovery.
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The Executive shall have the right, in addition to any other relief granted by
such arbitrator, to reasonable attorneys' fees in the event that a claim brought
by the Executive is decided in the Executive's favor (with the amount of such
fees being limited to those expended defending or in connection with the claim
or claims decided in favor of the Executive). Any judgment by such arbitrator
may be entered into any court with jurisdiction over the dispute.
(h) Acknowledgement. Executive acknowledges that she has been
advised by Employer to seek the advice of independent counsel prior to reaching
agreement with Employer on any of the terms of this Agreement.
(i) Amendments and Waivers. No modification, amendment or waiver of
any provision of, or consent required by, this Agreement, nor any consent to any
departure herefrom, shall be effective unless it is in writing and signed by the
parties hereto. Such modification, amendment, waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
(j) Descriptive Headings; Certain Interpretations. Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
(k) Counterparts; Entire Agreement. This Agreement may be executed
in any number of counterparts, and each such counterpart hereof shall be deemed
to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement and the Option Agreement contain the
entire agreement among the parties with respect to the transactions contemplated
by this Agreement and the Option Agreement and supersede all prior agreements or
understandings among the parties with respect to the Executive's employment by
the Employer.
(l) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
(m) CONSENT TO JURISDICTION. EACH OF THE COMPANY, THE EMPLOYER AND
THE EXECUTIVE HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT LOCATED IN LOS ANGELES COUNTY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND THE EXECUTIVE AGREES NOT
TO COMMENCE ANY LEGAL PROCEEDING RELATING THERETO EXCEPT IN SUCH COURT. EACH OF
THE COMPANY, THE EMPLOYER AND THE EXECUTIVE IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH HE MAY NOW OR HEREAFTER HAVE TO THE
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LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
NETGATEWAY, INC.
By:_________________________________
Name:
Title:
NETGATEWAY
By:_________________________________
Name:
Title:
____________________________________
Jill Glashow Padwa
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Netgateway, Inc.
Long Beach, California
February 9, 2000
Gentlemen:
We have been furnished with a copy of Form 10-Q of Netgateway, Inc. for the
three and six months ended December 31, 1999, and have read the Company's
statements contained in Note 3 to the condensed consolidated financial
statements included therein. As stated in Note 3, the Company changed its method
of accounting for contracts from the completed-contract method to the
percentage-of-completion method and states that the newly adopted accounting
principle is preferable in the circumstances because revenue recognition under
the percentage-of-completion method more accurately reflects the current
earnings process under the Company's contracts. In accordance with your request,
we have reviewed and discussed with Company officials the circumstances and
business judgment and planning upon which the decision to make this change in
the method of accounting was based.
We have not audited any consolidated financial statements of Netgateway, Inc. as
of any date or for any period subsequent to June 30, 1999, nor have we audited
the information set forth in the aforementioned Note 3 to the condensed
consolidated financial statements; accordingly, we do not express an opinion
concerning the factual information contained therein.
Under Statement of Position 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, issued by the American
Institute of Certified Public Accountants, the use of the
percentage-of-completion method is preferable if reasonably dependable estimates
of the extent of progress toward completion, contract revenues, and contract
costs can be made.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG LLP
