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The Standard: Gateway Should Stick to Selling Computers; eSoft, Other Investments, in Trouble

Dec 29, 2000, 17:12 (0 Talkback[s])
(Other stories by Cory Johnson)

"An extensive investigation of Gateway's press releases, internal documents and filings with the Securities and Exchange Commission reveals that the company is sitting on a pile of dwindling "other assets," including investments in struggling dot-coms, sputtering retail partners and a few companies that might not survive the winter."

"Among the most troubled of those investments is the millions Gateway has sunk into eSoft (ESFT) , a move which seemed like a good idea on April 26, when Gateway agreed to put $12.5 million into the tiny Colorado-based Linux company with just $9 million in annual revenues. Gateway bought 640,796 shares at $19.51 apiece and inked an arrangement to buy another 640,796 shares at the same price. But almost immediately, things started to go bad at eSoft: Sequential revenues fell by 16.5 percent in the same quarter Gateway made its investment, and another 53 percent fell the following quarter. By August, eSoft shares were down to $7.50."

"Despite its contractual obligation, Gateway refused to follow good money with bad money and balked at paying $19.51 for another 640,796 shares. But eSoft insisted, issuing a press release with a demand for the other $12.5 million. The two companies finally settled the deal behind closed doors, with Gateway forking over the $12.5 million as a loan, repayable over four years, with stock priced between $11 and $19.50. ESoft was desperate for the money and had to accept the terms."

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