SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 2001.
[ ] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
_______________ to ______________.
Commission file number 000-27941
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.)
754 East Technology Avenue,
Orem, Utah 84097
(Address of principal executive office) (Zip Code)
(801) 227-0004
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange On Which Registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Indicate by check mark whether the registrant (1) 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), Yes[X] No [ ], and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the average of the bid and asked price for the registrant's
common stock on the Nasdaq OTC Bulletin Board on September 28, 2001, the
aggregate market value on such date of the registrant's common stock held by
non-affiliates of the registrant was $13,915,134. For the purposes of this
calculation, shares owned by officers, directors and 10% stockholders known to
the registrant have been deemed to be owned by affiliates.
The number of shares outstanding of the registrant's common stock, as
of September 30, 2001, was 41,998,565.
The sole purpose of this Form 10-K/A is to add the information required by
Part III of Form 10-K to the Registrant's Form 10-K, which was originally filed
with the Securities and Exchange Commission on October 15, 2001, pursuant to
General Instruction G(3) of Form 10-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth in the table below are the names, ages and positions of the
current directors and executive officers of Netgateway. None of the directors or
executive officers has any family relationship to any other director or
executive officer of Netgateway.
Name Age Position
Donald L. Danks..................... 44 Chairman of the Board of
Directors and Chief Executive
Officer
John J. "Jay" Poelman............... 57 President, Chief Operating
Officer and Director
Shelly Singhal...................... 34 Director
Frank C. Heyman..................... 64 Chief Financial Officer
Brandon Lewis....................... 30 Executive Vice President-
Sales and Marketing
David Rosenvall..................... 34 Chief Technology Officer
David Wise.......................... 41 Vice-President, Operations
Set forth below is a brief description of the business experience for the
previous five years of all current directors and executive officers of
Netgateway.
Donald L. Danks
Mr. Danks was appointed as our Chief Executive Officer on January 5, 2001.
He was an original investor in founding Netgateway in 1998 and is currently one
of our largest shareholders. During the five years previous to joining us as our
CEO, Mr. Danks was involved in the creation, funding and business development of
early-stage technology companies. In addition to attracting inceptive capital
for client companies, Mr. Danks assisted in the development of their business
plans, helped in the recruitment of senior management, supported the development
of the public market for their securities by introducing them to institutional
investors and market makers and oversaw ongoing corporate finance needs.
Previously, Mr. Danks was the co-founder and President of Prosoft Training.com,
(Nasdaq: POSO), a company involved in Internet technology training, education
and certification. Mr. Danks holds a B.S. from UCLA.
John J. "Jay" Poelman
Mr. Poelman was appointed as our president and chief operating officer on
January 5, 2001. Prior to Galaxy's merger with us, Mr. Poelman served as CEO and
President of Galaxy for over three years, from 1997-2000. From 1993 until 1997,
Mr. Poelman was the CEO of Profit Education Systems, Inc. (PES). In 1997, Galaxy
Mall, Inc. acquired the assets of PES, and Mr. Poelman became the CEO of Galaxy.
Shelly Singhal
Mr. Singhal is currently Managing Director and Executive Vice President of
SBI-E2-Capital (USA), Inc., an investment bank. He was Managing Director of
Technology Investment Banking for BlueStone Capital Securities, Inc. from
October 2000 to May 2001, and from 1995 to 2000, Mr. Singhal was Managing
Director of Corporate Finance at Roth Capital Partners and head of its
E-Commerce Group. Mr. Singhal received his B.S. from Seaver College at
Pepperdine University, and he currently also serves on the board of directors of
Entertainment Boulevard Inc. and Chell Group Corp.
Frank C. Heyman
Mr. Heyman has served as our Chief Financial Officer since September 2000.
Prior to that, he served from 1997-2000 as vice president, secretary, treasurer
and chief financial officer of our subsidiary, Galaxy Enterprises. From June
1992 to May 1996 he also served as financial vice president and chief financial
officer and a director of NYB Corporation, a manufacturer of women's sport
clothing, and from June 1996 to April 1997 he was employed as controller of
Provider Solutions, Inc., a business consulting firm. Prior to that, from 1986
to 1992, Mr. Heyman served as vice president and chief financial officer of GC
Industries, Inc., a manufacturer of calibration systems for toxic gas monitors.
Mr. Heyman is a graduate of the University of Utah with a B.S. degree in
accounting.
Brandon Lewis
Mr. Lewis has served as our Executive Vice-President for sales and
marketing since January, 2001. He was Vice-President of sales and marketing and
COO of Galaxymall.com from 1997 until he joined our company. Prior to Galaxy,
Mr. Lewis was Vice-President of sales and marketing for Profit Education
Systems, Inc. a worldwide marketing and sales organization. Mr. Lewis earned his
B.A. degree from Brigham Young University.
David Rosenvall
Mr. Rosenvall was appointed as our Chief Technology Officer in February
2001. Prior thereto, he served as our Chief Architect from September 1999. He
initially joined us in November 1998 as part of Netgateway's acquisition of
StoresOnline.com. From September 1997-December 1998, Mr. Rosenvall was president
of Spartan Multimedia in Calgary, Alberta, Canada, and from January 1995 to
August 1997, he was Vice-President for Research and Development at Xentel,
another Calgary company. Mr. Rosenvall holds a B.S. in Mechanical Engineering
from the University of Calgary and an M.B.A. from Brigham Young University.
David Wise
Mr. Wise was Chief Operating Officer of Galaxy Mall prior to becoming our
Vice President-Operations in July 2000. Prior to joining Galaxy Mall, Mr. Wise
was, from 1998-1999, president of Wise Business Solutions. From 1992 to 1999, he
was chief financial officer and chief operating officer of Capsoft Development
Corp.
Election of Officers
Officers are elected annually by the board of directors and hold office at
the discretion of the board of directors. There are no family relationships
among our directors or executive officers.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our directors and executive officers, and persons who own more than 10% of a
registered class of our equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of our equity securities. Officers, directors, and greater than 10%
shareholders are required to furnish us with copies of all Section 16(a) forms
they file.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us during our most recent fiscal year and Form 5 and amendments
thereto, or written representations that no Form 5 is required, we believe that
all forms required by Section 16(a), including amendments thereto, were timely
filed, with the following exceptions: Donald L. Danks filed a late Form 3, a
late Form 4 reporting one transaction in January 2001, and a late Form 4
reporting two transactions in May 2001; John J. "Jay" Poelman filed a late Form
3 and did not file a Form 4 with respect to three transactions in January 2001,
which transactions were subsequently reported in Mr. Poelman's Form 5; Frank C.
Heyman filed a late Form 3 and did not file two Form 4's for one transaction in
January 2001 and one transaction in April 2001, which transactions were
subsequently reported in Mr. Heyman's Form 5; David L. Rosenvall filed a late
Form 3; Brandon R. Lewis filed a late Form 3; David T. Wise filed a late Form 3;
and, Scott Beebe did not file a Form 4 with respect to two transactions in
February 2001, which transactions were subsequently reported in Mr. Beebe's Form
5.
Item 11. Executive Compensation
Executive Compensation
The following table contains information concerning each of the three
persons who served as our chief executive officer during the fiscal year 2001,
our four most highly-compensated executive officers during fiscal year 2001 who
were serving as executive officers at the end of fiscal year 2001, and two other
executive officers who ceased serving as executive officers during fiscal year
2001 (as a group, the "named executive officers").
Summary Compensation Table
Annual Compensation Long-Term Compensation Awards
Restricted
Stock Stock
Name and Salary Bonus Awards Options All Other
Principal Position Year ($) ($) ($) (#) Compensation
------------------ ---- --- --- - --- --- ------------
Donald L. Danks (1) ..................2001 0 0 0 0 0
Chief Executive Officer 2000 -- -- -- -- --
1999 -- -- -- -- --
John J. "Jay" Poelman (2)........... 2001 134,200 86,339 -- 275,0000 --
President and Chief Operating 2000 126,152 43,212 -- -- --
Officer 1999 76,487 37,500 -- -- --
David Rosenvall ................... 2001 117,343 -- -- 150,000 --
Chief Technology Officer 2000 118,841 -- -- 77,500 --
1999 40,067 -- -- 35,000 --
Brandon Lewis ...................... 2001 106,542 69,154 -- 275,000 --
Executive Vice President-Sales and
Marketing 2000 100,169 34,650 -- 111,720 --
1999 61,269 30,000 -- -- --
David Wise.......................... 2001 103,841 61,792 -- 125,000 --
Vice President - Operations 2000 49,154 -- -- 95,760 --
1999 -- -- -- -- --
Keith D. Freadhoff (3)................2001 69,726 -- -- -- 51,790
Former Chief Executive Officer 2000 201,339 57,500 -- -- --
1999 100,625 57,500 3,200,000 676,000 --
Roy W. Camblin, III (4) ............ 2001 57,318 -- -- 400,000 --
Former Chief Executive Officer 2000 164,315 28,750 3,375,000 200,000 --
1999 -- -- -- -- --
Donald Corliss (5) ................. 2001 66,711 -- -- -- 43,145
Former President and Chief
Operating Officer 2000 192,697 55,000 -- -- --
1999 96,250 50,000 3,200,000 664,000 --
Simon Spencer (6) .................. 2001 69,211 -- -- -- 30,000
Former Chief Information Officer 2000 135,736 52,500 -- 50,000 --
1999 -- -- -- -- --
(1) Mr. Danks was appointed as chief executive officer on January 5, 2001.
(2) Mr. Poelman was appointed as President and Chief Operating Officer on
January 5, 2001.
(3) Mr. Freadhoff served as chief executive officer prior to Mr. Camblin's
appointment as chief executive officer in October 1999 and from
November 2000 to January 5, 2001. During the year ended June 30, 1999,
Mr. Freadhoff earned options exercisable for an aggregate of 676,000
shares of common stock. Subsequent to June 30, 1999, all performance
and other options granted to Mr. Freadhoff were terminated. In lieu of
these options, Mr. Freadhoff received a restricted stock award of
400,000 shares of common stock. Pursuant to a severance settlement
agreement with Mr. Freadhoff, he received $51,790 in fiscal 2001 in the
form of consultant fees, health insurance premiums and a one-half
interest in certain licenses and equipment owned by us.
(4) Mr. Camblin commenced his employment with us in August 1999 and served
as chief executive officer from October 1999 to November 2000. Mr.
Camblin was granted options during the fiscal year ending June 30, 2001
to purchase a total of 400,000 shares of our common stock. All of these
options were cancelled upon Mr. Camblin's termination in November 2000.
At June 30, 2001, Mr. Camblin held options exercisable for an aggregate
of 200,000 shares of common stock at $8.18 per share, all of which were
vested. In November 1999, Mr. Camblin received a restricted stock award
of 500,000 shares of our common stock.
(5) Mr. Corliss served as President and Chief Operating Officer from March
1998 until January 5, 2001. During the year ended June 30, 1999, Mr.
Corliss earned performance-based stock options exercisable for an
aggregate of 264,000 shares of common stock and other options
exercisable for an aggregate of 400,000 shares of common stock.
Subsequent to June 30, 1999, all performance and other options
previously granted to Mr. Corliss, including the options referenced in
the preceding sentence, were terminated. In lieu of these options, Mr.
Corliss received a restricted stock award of 400,000 shares of our
common stock. Pursuant to a severance settlement agreement with Mr.
Corliss, he received $43,145 in fiscal 2001 in the form of consultant
fees, health insurance premiums and a one-half interest in certain
licenses and equipment owned by us.
(6) Mr. Spencer served as Chief Information Officer until December 31,
2000. Pursuant to a severance settlement agreement with Mr. Spencer, he
received $30,000 in fiscal 2001 in the form of consultant fees. In
addition, the exercise period for options to purchase 48,250 shares of
common stock was extended until December 31, 2002.
Employment Agreements
Current Officers
The following table summarizes the key provisions of the employment
agreements between us and our current executive officers.
Contract Contract Per Annum
Name/Position Commencement Termination Salary Bonus
------------- ------
Date Date (1) Arrangements
---- ---- ------------
John J. "Jay" Poelman......... June 26 2000 June 26, 2002 $143,000 As determined by board of
President, Chief Operating Officer directors
and Director
Brandon Lewis................. June 26, 2000 June 26, 2002 $114,125 As determined by board of
Executive Vice President-Sales and directors
Marketing
David Rosenvall .............. November 1, 1998 November 1, 2001 $145,000 As determined by board of
Chief Technology Officer directors
David Wise.................... June 26, 2000 June 26, 2002 $110,650 As determined by board of
Vice President - Operations directors.
--------------------
(1) Each of Messrs. Poelman, Lewis, Rosenvall and Wise agreed to a pay cut
for an indefinite period effective March 3, 2001, which cuts remain in
effect at the present time. Mr. Poelman's salary was adjusted to $114,400;
Mr. Lewis' salary was adjusted to $91,300; Mr. Rosenvall's salary was
adjusted to $116,000; and Mr. Wise's salary was adjusted to $88,250.
Messrs. Poelman, Lewis and Wise each entered into a two-year employment
agreement with Galaxy Enterprises, effective June 26, 2000. Each agreement
provides for payment of a base salary, a cash bonus payable in September 2000
(deferred and subsequently paid in April 2001 with shares of our common stock),
and such other bonuses as we might give from time to time. Each agreement also
provides, in the event of dismissal without cause or resignation by the employee
for good reason (as defined in the agreement), for the payment of a lump sum
equal to the employee's base salary for a period of six months or for the
remainder of the term of the contract, whichever period is shorter. In addition,
the employees are entitled to retain, upon termination or resignation, such
stock options as they may hold at such time. Mr. Rosenvall's employment
agreement was entered into in November 1998 with StoresOnline.com Ltd. and was
subsequently assumed by us. Its terms are substantially similar to the Galaxy
agreements, except that Mr. Rosenvall's severance payment consists of nine
months' salary, subject to set-off from any other employment during such
nine-month period.
Former Officers
Of the named executive officers, Messrs. Freadhoff, Camblin, Corliss and
Spencer were no longer employed by us as of the end of fiscal 2001. Each of
these persons had employment agreements with us. Keith D. Freadhoff's employment
agreement was entered into effective January 1, 1999 and had a termination date
of December 31, 2001. The agreement provided for an annual salary of $201,500
and a bonus determined at the discretion of the directors. Mr. Freadhoff
resigned as our Chief Executive Officer on January 5, 2001. Pursuant to a
severance settlement agreement with Mr. Freadhoff, he received $51,790 in fiscal
2001 in the form of consultant fees, health insurance premiums and a one-half
interest in certain licenses and equipment owned by us.
Roy W. Camblin's employment agreement was entered into effective August 13,
1999 and had a termination date, as amended, of July 25, 2002. The agreement
provided for an annual salary of $250,000 and a bonus determined at the
discretion of the directors. Mr. Camblin resigned as our Chief Executive Officer
in November 2000.
Donald M. Corliss' employment agreement was entered into effective January
1, 1999 and had a termination date of December 31, 2001. The agreement provided
for an annual salary of $192,500 and a bonus determined at the discretion of the
directors. Pursuant to a severance settlement agreement with Mr. Corliss, he
received $43,145 in fiscal 2001 in the form of consultant fees, health insurance
premiums and a one-half interest in certain licenses and equipment owned by us.
Simon Spencer's employment agreement was entered into effective March 1,
2000 and had a termination date of February 28, 2002. The agreement provided for
an annual salary of $200,000 and a bonus determined at the discretion of the
directors. Pursuant to a severance settlement agreement with Mr. Spencer, he
received $30,000 in fiscal 2001 in the form of consultant fees. In addition, the
exercise period for options to purchase 48,250 shares of common stock was
extended until December 31, 2002.
Stock Option Grants in Last Fiscal Year
The following table sets forth certain information concerning options to
purchase our common stock that were granted in fiscal year 2001 to the named
executive officers pursuant to our 1998 Stock Option Plan for Senior Executives.
The options have vesting periods ranging from 0-2 years. We did not grant SARs
in fiscal year 2001. The assumed 5% and 10% rates of stock price appreciation
are provided in accordance with rules of the SEC and do not represent our
estimate or projection of our common stock price. Actual gains, if any, on stock
option exercises are dependent on the future performance of our common stock,
overall market conditions, and the option holders' continued employment through
the vesting period. Unless the market price of our common stock appreciates over
the option term, no value will be realized from the option grants made to these
executive officers. The potential realizable values shown in the table are
calculated by assuming that the estimated fair market value of our common stock
on the date of grant increases by 5% and 10%, respectively, during each year of
the option term. The fair market value of our common stock was determined on the
basis of the closing sales price of our common stock on June 30, 2001. Each of
the options has a ten-year term. However, the options will terminate earlier if
the optionee ceases service with us unless the option is an employee terminated
without cause and certain instances in cases of changes in control of
Netgateway.
Potential Realizable Value At
Assumed Annual Rates Of Stock
Price
Appreciation For Option Term
Individual Grants ($)(1)
Percent of
Total
Options
Number of Granted to
Securities Employees
Underlying In Fiscal Exercise Expiration
Name Options Granted Year Price ($) Date 5% 10%
---- --------------- ---- --------- ---- -- ---
Donald Danks......... --0--
Jay Poelman.......... 68,750 2.06 0.25 01/04/11 29,642 49,092
68,750 2.06 0.50 01/04/11 28,719 47,884
68,750 2.06 0.75 01/04/11 28,045 46,983
68,750 2.06 1.00 01/04/11 27,502 46,246
Brandon Lewis........ 68,750 2.06 0.25 01/04/11 29,642 49,092
68,750 2.06 0.50 01/04/11 28,719 47,884
68,750 2.06 0.75 01/04/11 28,045 46,983
68,750 2.06 1.00 01/04/11 27,502 46,246
David Rosenval....... 37,500 1.13 0.25 01/04/11 16,168 26,777
37,500 1.13 0.50 01/04/11 15,665 26,119
37,500 1.13 0.75 01/04/11 15,297 25,627
37,500 1.13 1.00 01/04/11 15,297 25,627
David Wise........... 31,250 0.94 0.25 01/04/11 13,474 22,315
31,250 0.94 0.50 01/04/11 13,054 21,766
31,250 0.94 0.75 01/04/11 12,748 21,356
31,250 0.94 1.00 01/04/11 12,501 21,021
Keith D. Freadhoff...... -- --
Roy W. Camblin III...... -- --
Donald M. Corliss,Jr... -- --
Simon Spencer........... -- --
(1) Calculated using the Black Scholes pricing model with the following
assumptions: (a) volatility-100%, (b) risk free rate-5%, (c) dividend
yield-0% and (d) time of exercise-10 years.
Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth information concerning the year-end number
and value of unexercised options with respect to each of the named executive
officers. None of these individuals exercised any options during this period.
Number of Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End (#) at Fiscal Year End ($)(1)
---------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Donald Danks......................... - - - -
Jay Poelman.......................... 110,983 291,697 13,406 40,219
Brandon Lewis........................ 114,175 368,305 13,406 23,031
David Rosenval....................... 107,269 155,231 7,313 12,563
David Wise........................... 34,777 185,983 6,094 10,469
Keith D. Freadhoff................... - - - -
Roy W. Camblin III................... - - - -
Donald M. Corliss, Jr................ - - - -
Simon Spencer........................ - - - -
----------
(1) Based on the closing sale price of our common stock on the OTC bulletin
board at fiscal year end of $0.64 per share less the exercise price
payable for the shares. The fair market value of our common stock at
June 30, 2001 was determined on the basis of the closing sale price of
our common stock on that date.
Stock Option Plans
1998 Stock Option Plan for Senior Executives
In December 1998, the board of directors adopted, and our stockholders
approved, the 1998 Stock Option Plan for Senior Executives. This plan provides
for the grant of options to purchase up to 5,000,000 shares of common stock to
our senior executives. Options may be either incentive stock options or
non-qualified stock options under Federal tax laws.
This plan is administered by the board of directors. The board has
appointed a plan administrator to address the day-to-day administration of this
plan. The board determines, among other things, the individuals who will receive
options, the time period during which the options may be partially or fully
vested and exercisable, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The per share exercise price of the common stock subject
to a non-qualified option may be established by the compensation committee, but
shall not be less than 50% of the fair market value per share of common stock on
the date the option is granted. The aggregate fair market value of common stock
for which any person may be granted incentive stock options which first become
exercisable in any calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order and, during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment by reason of death, disability or by us for cause, as defined in each
optionee's employment agreement, the optionee will have no more than 365 days
after such termination during which the optionee shall be entitled to exercise
the vested options, unless otherwise determined by the board of directors. Upon
termination of employment by us without cause or by the optionee for good
reason, as defined in the optionee's employment agreement, the optionee's
options remain exercisable to the extent the options were exercisable on the
date of such termination until the expiration date of the options pursuant to
the option agreement.
We may grant options under this plan within ten years from the effective
date of the plan. The effective date of this plan is December 31, 1998. Holders
of incentive stock options granted under this plan cannot exercise these options
more than ten years from the date of grant. Payment of the exercise price may be
made by (1) delivery of cash or a check, bank draft or money order, in United
States dollars, payable to our order, (2) through delivery to us of shares of
common stock already owned by the optionee with an aggregate fair market value
on the date of exercise equal to the total exercise price, (3) by having shares
with an aggregate fair market value on the date of exercise equal to the total
exercise price (A) withheld by us or (B) sold by a broker-dealer under the
circumstances meeting the requirements of 12 C.F.R. ss. 220 or any successor
thereof, (4) by any combination of the above methods of payment or (5) by any
other means determined by the board of directors. Therefore, if it is provided
in an optionee's option agreement, the optionee may be able to tender shares of
common stock to purchase additional shares of common stock and may theoretically
exercise all of his stock options with no additional investment other than the
purchase of his original shares.
Any unexercised options that expire or terminate upon an optionee's ceasing
to be employed by us become available again for reissuance under this plan.
As of June 30, 2001, options exercisable for an aggregate of 440,625 shares
of common stock were outstanding pursuant to this plan at a weighted average
exercise price of $5.36 per share.
1998 Stock Compensation Program
In July 1998, the board of directors adopted the 1998 Stock Compensation
Program. The program was approved by our stockholders in December 1998. This
program provides for the grant of options to purchase up to 1,000,000 shares of
common stock to officers, employees, directors and independent contractors and
agents. Options may be either incentive stock options or non-qualified stock
options under Federal tax laws.
This program is administered by the board of directors. The board has
appointed a plan administrator to address the day-to-day administration of this
plan. The board determines, among other things, the individuals who will receive
options, the time period during which the options may be partially or fully
vested and exercisable, the number of shares of common stock issuable upon the
exercise of each option and the option exercise price.
The exercise price per share of common stock subject to an incentive option
may not be less than the fair market value per share of common stock on the date
the option is granted. The aggregate fair market value of common stock for which
any person may be granted incentive stock options which first become exercisable
in any calendar year may not exceed $100,000 on the date of grant.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution or, if permitted, pursuant to a qualified
domestic relations order and, during the lifetime of the optionee, the option
will be exercisable only by the optionee. In the event of termination of
employment for reasons other than the death or disability of the optionee, the
option shall terminate immediately; provided, however, that the board of
directors may, in its sole discretion, allow the option to be exercised, to the
extent exercisable on the date of termination of employment or service, at
anytime within 60 days from the date of termination of employment or service. In
the event of termination of employment by reason of the death or disability of
the optionee, the option may be exercised, to the extent exercisable on the date
of death or disability, within one year from such date.
We may grant options under this program within ten years from the effective
date of the plan. The effective date of this program is July 31, 1998. Holders
of incentive stock options granted under this program cannot exercise these
options more than ten years from the date of grant. Payment of the exercise
price may be made by (1) delivery of cash or a check, bank draft or money order,
in United States dollars, payable to our order, (2) through delivery to us of
shares of common stock already owned by the optionee with an aggregate fair
market value on the date of exercise equal to the total exercise price, (3) by
having shares with an aggregate fair market value on the date of exercise equal
to the total exercise price (A) withheld by us or (B) sold by a broker-dealer
under the circumstances meeting the requirements of 12 C.F.R. ss. 220 or any
successor thereof, (4) by any combination of the above methods of payment or (5)
by any other means determined by the board of directors. Therefore, if it is
provided in an optionee's option agreement, the optionee may be able to tender
shares of common stock to purchase additional shares of common stock and may
theoretically exercise all of his stock options with no additional investment
other than the purchase of his original shares.
Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by us become available again for reissuance under this
program.
This program permits us to grant, in addition to incentive stock options
and non-qualified stock options:
o rights to purchase shares of our common stock to employees;
o restricted shares of our common stock;
o stock appreciation rights; and
o performance shares of common stock.
However, we have not issued any other type of compensation under this program
other than non-qualified stock options and have agreed not to do so in the
future.
As of June 30, 2001, options exercisable for an aggregate of 79,780 shares
of common stock were outstanding pursuant to this program at a weighted average
exercise price of $3.39 per share.
1999 Stock Option Plan For Non-Executives
In July 1999, the board of directors adopted the 1999 Stock Option Plan for
Non-Executives. This plan was approved by our stockholders in May 2000. This
plan is administered by the compensation committee of the board of directors.
The compensation committee has appointed a plan administrator to address the
day-to-day administration of this plan. The compensation committee determines,
among other things, the individuals who will receive options, the time period
during which the options may be partially or fully vested and exercisable, the
number of shares of common stock issuable upon the exercise of each option and
the option exercise price.
The exercise price per share of common stock subject to an option is
determined on the date of grant, and is generally fixed at 100% of the fair
market value per share at the time of grant. The exercise price of any option
granted to an optionee who owns stock possessing more than 10% of the voting
power of our outstanding capital stock must equal at least 110% of the fair
market value of the common stock on the date of grant. Payment of the exercise
price may be made by (1) delivery of cash or a check, bank draft or money order
in United States dollars, payable to our order, (2) through delivery to us of
shares of common stock already owned by the optionee with an aggregate fair
market value on the date of exercise equal to the total exercise price (3) by
having shares with an aggregate fair market value on the date of exercise equal
to the total exercise price (A) withheld by us or (B) sold by a broker-dealer
under circumstances meeting the requirements of 12 C.F.R. ss. 220 or any
successor thereof, (4) by any combination of the above methods of payment or (5)
by any other means determined by the board of directors.
Options granted to employees under the 1999 Stock Option Plan for
Non-Executives generally become exercisable in increments, based on the
optionee's continued employment with us, over a period of up to three years. The
form of option agreement generally provides that options granted under the 1999
Stock Option Plan for Non-Executives is not transferable by the optionee, other
than by will or the laws of descent and distribution, and are exercisable during
the optionee's lifetime only by the optionee. In the event of termination of
employment for reasons other than the death or disability of the optionee, the
option shall terminate immediately; provided, however, that the board of
directors may, in its sole discretion, allow the option to be exercised, to the
extent exercisable on the date of termination of employment or service, at
anytime within 60 days from the date of termination of employment or service. In
the event of termination of employment by reason of the death or disability of
the optionee, the option may be exercised, to the extent exercisable on the date
of death or disability, within one year from such date. Generally, in the event
of our merger with or into another corporation or a sale of all or substantially
all of our assets, all outstanding options under the 1999 Stock Option Plan for
Non-Executives shall accelerate and become fully exercisable upon consummation
of such merger or sale of assets.
The board may amend the 1999 Stock Option Plan for Non-Executives at any
time or from time to time or may terminate the 1999 Stock Option Plan for
Non-Executives without the approval of the stockholders, provided that
stockholder approval is required for any amendment to the 1999 Stock Option Plan
for Non-Executives requiring stockholder approval under applicable law as in
effect at the time. However, no action by the board of directors or stockholders
may alter or impair any option previously granted under the 1999 Stock Option
Plan for Non-Executives. The board may accelerate the exercisability of any
option or waive any condition or restriction pertaining to such option at any
time.
Any unexercised options that expire or that terminate upon an optionee's
ceasing to be employed by us become available for reissuance under this plan.
In May 2000, our stockholders approved an amendment to this plan to
increase the number of shares available for grant under the plan from 2,000,000
to 5,000,000.
As of June 30, 2001, options exercisable for an aggregate of 444,916 shares
of common stock were outstanding pursuant to this plan at a weighted average
exercise price of $5.21.
Galaxy Enterprises Stock Option Plan
Pursuant to the terms of the merger with Galaxy Enterprises, each
outstanding option to purchase shares of Galaxy Enterprises common stock under
Galaxy Enterprises' 1997 Employee Stock Option Plan was assumed by us, whether
or not vested and exercisable. We assumed options exercisable for an aggregate
of 1,665,815 shares of common stock of Galaxy Enterprises.
Each Galaxy Enterprises stock option and warrant we assumed is subject to
the same terms and conditions that were applicable to the stock option or
warrant immediately prior to the merger, except that:
o each Galaxy Enterprises stock option will be exercisable for
shares of our common stock and the number of shares of our common
stock issuable upon exercise of any given option or warrant will
be determined by multiplying 0.63843 by the number of shares of
Galaxy Enterprises common stock underlying such option or
warrant; and
o the per share exercise price of any such option or warrant will
be determined by dividing the exercise price of the option
immediately prior to the effective time of the merger by 0.63843.
As at June 30, 2001, outstanding options assumed in the Galaxy merger were
exercisable for 308,627 shares of our common stock.
Compensation Committee Interlocks and Insider Participation
During fiscal 2001, Messrs. Beebe and Dillon served as members of our
compensation committee until November 2000. From November 2000 to January 2001,
Messrs. Beebe and Singhal comprised this committee. In January 2001, the
membership of the compensation committee was extended to the full board of
directors, comprised of Messrs. Danks, Poelman and Singhal. No interlocking
relationships exist between our compensation committee and the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past. There are no interlocking
relationships between us and other entities that might affect the determination
of the compensation of our directors and executive officers.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation and/or bylaws include provisions to (1)
indemnify the directors and officers to the fullest extent permitted by the
Delaware General Corporation Law including circumstances under which
indemnification is otherwise discretionary and (2) eliminate the personal
liability of directors and officers for monetary damages resulting from breaches
of their fiduciary duty, except for liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
Delaware General Corporation Law or for any transaction from which the director
derived an improper personal benefit. We believe that these provisions are
necessary to attract and retain qualified directors and officers.
We have directors and officers liability insurance in an amount of not less
than $2.0 million. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
pursuant to the foregoing provisions or otherwise, we have been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Director Compensation
None of our current directors are awarded stock options or are compensated
for their services as directors, but Mr. Poelman is compensated as an officer of
our company and has been granted stock options in this capacity. All directors
are reimbursed for reasonable expenses incurred in connection with attending
meetings of the board of directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 30, 2001:
o each person who is known by us to be the owner of record or
beneficial owner of more than 5% of the outstanding common stock;
o each of our directors and named executive officers, which
includes certain of our former officers;
o all of our current directors and executive officers as a group;
and
o the number of shares of common stock beneficially owned by each
person and group and the percentage of the outstanding shares
owned by each person and group.
With respect to certain of the individuals listed below, we have relied
upon information set forth in statements filed with the Securities and Exchange
Commission pursuant to Section 13(d) or 13(g) of the Securities Exchange Act of
1934. Except as otherwise noted below, the address of each of the persons in the
table is c/o Netgateway, Inc., 754 East Technology Ave., Orem, Utah 84097.
Number of Warrants
and Option Grants
Under Netgateway Total Percent of Class
Shares Stock Options Beneficial Beneficially
Name of Beneficial Owner Owned Plans(1) Ownership(2) Owned
King William LLC................... 3,600,000 500,000 4,100,000 9.6
c/o Southridge Capital
90 Grove Street, Suite 206
Ridgefield, CT 06877
Donald L. Danks.................... 2,257,510 0 2,257,510 5.4
Shelly Singhal........................... 0 125,000 125,000 *
John J. "Jay" Poelman.................... 1,524,295 179,733 1,704,028 4.0
Brandon Lewis............................ 409,694 160,581 570,275 1.3
David Rosenvall.......................... 94,716 151,956 246,672 *
David Wise............................... 262,718 66,027 328,745 *
Keith D. Freadhoff (3) .................. 688,949 0 688,949 1.6
P.O. Box 470932
Celebration, FL 34747
Roy W. Camblin III (3) ................. 500,000 200,000 700,000 1.6
c/o 1900 S. Norfolk St., Suite 310,
San Mateo, California 94403
Donald Corliss (3) ..................... 400,000 0 400,000 *
23052-H Alicia Parkway, #151
Mission Viejo, CA 92692
Simon Spencer (3) ....................... 7,000 0 7,000 *
All current directors as a group(4) 3,781,805 304,733 4,086,538 9.7
All current directors and executive
officers as a group (5)............... 4,891,540 797,003 5,688,543 13.3
----------
* Less than 1 percent.
(1) Reflects warrants or options that will be exercisable or vested, as the
case may be, as of October 15, 2001 or within 60 days thereafter.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or become
exercisable within 60 days following June 30, 2001 are deemed outstanding.
These shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. Unless otherwise
indicated in the footnotes to this table, the persons and entities named in
the table have sole voting and sole investment power with respect to the
shares set forth opposite such stockholder's name.
(3) Messrs. Freadhoff, Camblin, Corliss and Spencer are all former officers.
(4) Our current directors consist of Donald L. Danks, John J. "Jay" Poelman and
Shelly Singhal.
(5) Netgateway's current directors and executive officers consist of: Donald
Danks, Shelly Singhall, John J. Poelman, Frank C. Heyman, Brandon Lewis,
David Rosenvall and David Wise.
Item 13. Certain Relationships and Related Transactions
In November 2000 Shelly Singhal, one of our directors, extended a loan to
us of $250,000 due January 31, 2001 without interest. Following January 31,
2001, interest has accrued on the principal outstanding balance at the rate of
18% per annum. We have made the following payments on the principal outstanding
balance of this loan: $83,000 on January 1, 2001, $27,000 on February 2, 2001
and $125,000 on August 16, 2001. A principal amount of $15,000 remains
outstanding. In connection with this loan Mr. Singhal received 5-year warrants
to purchase 125,000 shares of our common stock at a price of $0.40 per share.
Between January and February 2001 Donald L. Danks lent Netgateway a total of
$240,000. These amounts were repaid without interest through the issuance of a
total of 800,000 shares of common stock valued at $.30 per share in September of
2001. In October and November 2000, John J. Poelman lent us a total of $118,000.
These amounts were repaid without interest through the issuance in April 2001 of
a total of 393,333 shares of our common stock valued at $0.30 per share, the
market price at the time of conversion.
On November 2000, we entered into an arrangement with BlueStone Capital,
LLP, an investment bank, whereby BlueStone agreed to provide financial advisory
services to us in consideration for a monthly payment of $7,500 and the issuance
by us to BlueStone of warrants to purchase 500,000 shares of our common stock at
market price for a period of five years. On January 15, 2001, we agreed with
BlueStone to terminate the arrangement between us. At the time we entered into
the arrangement with BlueStone, Shelly Singhal, one of our directors, was
managing director of BlueStone.
On April 5, 2001, we entered into agreements with four of our executive
officers to issue them a total of 1,513,167 shares of our common stock at a
price of $0.30 per share, which price was equal to the market value of the stock
at the time, in exchange for the release by them of claims for unpaid salaries
and bonuses accrued during the period January 1999 to February 2001 totaling
$453,950 in the aggregate.
In June 2001 Netgateway entered into a finder's agreement with SBI E-2
Capital (USA) Inc. of Newport Beach, California. Shelly Singhal, one of our
directors, is a managing director of SBI. Pursuant to the agreement, the term of
which runs from June 14, 2001 to June 15, 2002, we agreed to pay SBI the
following in consideration for assisting us in finding potential investors for
our recent private placement: 2% of the gross proceeds of all capital raised by
us during the term of the agreement; 7% of any proceeds raised via introduction
from SBI; warrants to purchase 250,000 shares of our common stock at the private
placement offering price; and reimbursement of SBI's out-of-pocket expenses, as
well as their counsel's fees and expenses.
We utilize the services of Electronic Commerce International, Inc. ("ECI"),
a Utah corporation, which provides merchant accounts and leasing services to
small businesses. ECI processes the financing of our merchants' storefront
leases and also wholesales software to us for on-line, realtime processing of
credit card transactions. John J. Poelman, our President, Chief Operating
Officer, director and one of our stockholders, is the sole stockholder of ECI.
ECI's ability to provide these services to us is dependent on a personal
guarantee Mr. Poelman has given to the performance by certain of our customers
of their obligations under their merchant accounts. During the fiscal year ended
June 30, 2001, our purchases of software from ECI totaled $975,257, and we
processed leasing transactions for our customers through ECI in the amount of
$3,386,231. As of June 30, 2001, we had a receivable from ECI for leases in
process of $90,109. In addition, we had $516,858 and $103,741 recorded in
accounts payable relating to the amount owed to ECI for the purchase of the
merchant account software. On August 1, 2001, we entered into an agreement with
ECI to settle ECI's trade claims against us by issuing to ECI a total of 831,915
shares of our common stock at a price of $0.30 per share and by assigning to
them certain of our rights to trade installment account reserves.
On September 4, 2001, we entered into an agreement on standard industry
terms with Electronic Marketing Services LLC, or EMS, for EMS to provide
customer sales and support service to our Galaxy Mall customers. The owner of
EMS is Ryan Poelman, a son of Jay Poelman, our President and Chief Operating
Officer. During the fiscal year ended June 30, 2001 and the three-month period
ended September 30, 2001, we made payments to EMS of $78,435 and $103,577,
respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
October 29, 2001 By: /s/ Donald L. Danks
Donald L. Danks
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Donald L. Danks
October 29, 2001 Donald L. Danks
Chief Executive Officer and Director
October 29, 2001 /s/ Frank Heyman
Frank Heyman
Chief Financial Officer
October 29, 2001 /s/ John J. "Jay" Poelman
John J. "Jay" Poelman
President, Chief Operating Officer & Director
October 29, 2001 /s/ Shelly Singhal
Shelly Singhal
Director