EXHIBIT 10.96
DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS
PERMITTED UNDER THE ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE
HARBOR THEREFROM.
US $4,500,000
NETGATEWAY, INC.
8% CONVERTIBLE DEBENTURE DUE JULY 31, 2003
FOR VALUE RECEIVED, NETGATEWAY, INC., a Delaware corporation (the
"Company") promises to pay to King William, LLC, a Cayman Islands limited
liability company, the registered holder hereof (the "Holder"), the principal
sum of Four Million Five Hundred Thousand Dollars and 00/100 Dollars (US
$4,500,000) on July 31, 2003 (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time in arrears (i) prior to the Maturity
Date, quarterly, on the last day of March, June, September and December of each
year, (ii) upon conversion as provided herein or (iii) on the Maturity Date, at
the rate of eight percent (8%) per annum accruing from July 31, 2000, the date
of the issuance of this Debenture. Accrual of interest shall commence on the
first such business day to occur after the date hereof and shall continue to
accrue on a daily basis until payment in full of the principal sum has been made
or duly provided for.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Ten Thousand Dollars
(US$10,000) and integral multiples thereof. The Debentures are exchangeable for
an equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws or
other applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
1
3. This Debenture has been issued subject to investment representations
of the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the "Act"), and other
applicable state and foreign securities laws. In the event of any proposed
transfer of this Debenture, the Company may require, prior to issuance of a new
Debenture in the name of such other person, that it receive reasonable transfer
documentation including legal opinions that the issuance of the Debenture in
such other name does not and will not cause a violation of the Act or any
applicable state or foreign securities laws. Prior to due presentment for
transfer of this Debenture, the Company and any agent of the Company may treat
the person in whose name this Debenture is duly registered on the Company's
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture be
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
4. A. The Holder of this Debenture is entitled, at its option, subject to
the following provisions of this Section 4, to convert all or a portion of this
Debenture into shares of Common Stock of the Company, $0.001 par value per share
("Common Stock") of the Company at any time until the Maturity Date, at a
conversion price for each share of Common Stock (the "Conversion Rate") equal to
the lower of (x) $1.79 or (y) the Current Market Price (as defined below)
multiplied by eighty percent (80%); provided that the principal amount being
converted is the lower of (x) at least $10,000 (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less than Ten Thousand Dollars $10,000, then the whole amount
thereof) or (y) the maximum amount which the Holder can then convert pursuant to
the terms of Section 4.E. hereof .
B. For purposes of this Debenture, the following terms have the
meanings indicated below:
(i) "Current Market Price" means the average of the Market Price
of the Common Stock for any three (3) non-consecutive trading days of the Common
Stock (which may include some consecutive days) during the twenty day trading
period ending on the trading day immediately before the relevant Conversion Date
(as defined below). On the relevant Conversion Date, Holder may select, in its
sole discretion, either of the formulas contained in (A) and (B) in the
immediately preceding sentence.
C. The Holder of this Debenture is entitled, at its option, to
convert this Debenture at any time which is after the earlier of (x) the
thirtieth (30th) day after the Initial Closing Date or (y) the Effective Date of
the Registrable Securities applicable to the Initial Debentures (as those terms
are defined in the Securities Purchase Agreement dated of even date herewith
(the "Securities Purchase Agreement").
D. Conversion shall be effectuated by surrendering the Debentures to
be converted to the Company's transfer agent, Colonial Stock Transfer Co., Inc.,
accompanied by or
2
preceded by facsimile or other delivery to the Company of the form of conversion
notice attached hereto as Exhibit A, executed by the Holder of the Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. Subject to the provisions of Section 4.E hereof,
interest accrued or accruing from the date of issuance to the date of conversion
shall, at the option of the Company, be paid in cash or Common Stock upon
conversion at the Conversion Rate applicable to such conversion. No fractional
shares of Common Stock or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given (the "Conversion
Date") shall be deemed to be the date on which the Holder faxes or otherwise
delivers the conversion notice ("Notice of Conversion"), substantially in the
form annexed hereto as Exhibit A, duly executed, to the Company, provided that
the Holder shall deliver to the Company's transfer agent or the Company the
original Debentures being converted within three (3) business days thereafter
(and if not so delivered within such time, the Conversion Date shall be the date
on which the later of the Notice of Conversion and the original Debentures being
converted is received by the Company). Facsimile delivery of the Notice of
Conversion shall be accepted by the Company at facsimile number (562)308-0021;
ATTN: CHIEF FINANCIAL OFFICER. Certificates representing Common Stock upon
conversion will be delivered as soon as practicable after Notice of Conversion
is delivered to the Company as contemplated in the first sentence of this
paragraph C or the original Debenture is delivered to the Company's transfer
agent or the Company.
E. Notwithstanding any other provision hereof, of the Warrants or of
any of the other Transaction Agreements (as those terms are defined in the
Securities Purchase Agreement), in no event (except (i) with respect to an
automatic conversion, if any, of a Debenture as provided in the Debentures, (ii)
as specifically provided in this Debenture as an exception to this provision, or
(iii) while there is outstanding a tender offer for any or all of the shares of
the Company's Common Stock) shall the Holder be entitled to convert any
Debenture or shall the Company have the obligation, to convert all or any
portion of this Debenture (and the Company shall not have the right to pay
interest on this Debenture) to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Debentures), and (2) the number of shares of Common Stock issuable upon the
conversion of the Debentures or exercise of the Warrants with respect to which
the determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (after taking into account the shares to be issued to the
Holder upon such conversion or exercise). For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), except as otherwise provided in clause (1) of such sentence.
Any issuance by the Company to the Buyer in excess of the limit contained in
this Section 4.E. shall be null and void, AB INITIO, and upon notice of such
3
invalid issuance, the Company shall correct its books and cause its transfer
agent's books to be corrected forthwith to reflect that the Buyer's ownership of
Common Stock is within the limit set forth herein. Holder shall immediately
deliver any certificates for invalidly issued Common Stock to the Company's
transfer agent. The Company further agrees to (i) immediately reissue
certificates for Common Stock to the extent that a portion of the Common Stock
represented by said certificates have been validly issued and (ii) immediately
reissue all or a portion of those shares which were deemed invalidly issued (at
the Conversion Price set forth in the original conversion notice(s) applicable
to such shares) upon notice from Holder that the reissuance of such shares would
not cause such Holder to have a beneficial ownership interest in excess of
4.99%. Notwithstanding the foregoing, Holder may elect, by providing the Company
written notice at any time prior to the reissuance of shares, to cancel that
portion of a prior conversion applicable to shares of Common Stock surrendered
by it pursuant to this Section 4.E. The Company hereby indemnifies and holds
Holder free and harmless in connection with any and all liabilities, losses,
costs and expenses, including, without limitation, attorneys' fees and costs
arising from or relating to claims made by any third parties alleging that any
Holder has violated Sections 13(d) and/or 16, to the extent such violation is
premised on the fact that, notwithstanding this Section 4.E., the Holder is the
beneficial owner of all of the shares of Common Stock which would be issuable,
from time to time, if Holder converted the entire principal and interest balance
of the Debenture. The Holder, by its acceptance of this Debenture, further
agrees that if the Holder transfers or assigns any of the Debentures to a party
who or which would not be considered such an affiliate, such assignment shall be
made subject to the transferee's or assignee's specific agreement to be bound by
the provisions of this Section 4(E) as if such transferee or assignee were the
original Holder hereof.
F. Anything herein to the contrary notwithstanding, in the event the
Company breaches the provisions of Section 4(g) of the Securities Purchase
Agreement, the Conversion Rate shall be amended to be equal to 87.5% of the
Conversion Rate determined in accordance with the other provisions of this
Debenture without regard to this Section 4.F., and the Holder may require the
Company to immediately redeem the outstanding portion of this Debenture in
accordance with clause (y) of Section 6 hereof.
G. If the average price closing bid price as reported on Bloomberg
of the Common Stock for a five (5) consecutive trading day period ("Triggering
Period") is less than $1.00 per share, the Holder agrees to suspend conversions
of the Debenture into Common Stock for a period of twenty (20) consecutive
trading days, commencing on the first trading day immediately after the end of
the FIRST such Triggering Period. If the average closing bid price as reported
by Bloomberg for the Common Stock for any five (5) consecutive days after the
FIRST such Triggering Period is less than $1.00 the Holder shall have no further
obligation to suspend conversions of the Debenture.
5. On the condition that the Company is not then in default hereunder,
any portion of the principal balance and accrued interest of the Debentures not
previously converted as of the Maturity Date, shall be deemed to be
automatically converted, without further action of any kind
4
(except the delivery of unrestricted Common Stock in connection with such
conversion) by the Company or any of its agents, employees or representatives,
as of the Maturity Date at the Conversion Rate applicable on the Maturity Date
("Mandatory Conversion"), and the Company shall have no further obligation to
repay the Debentures. If the Company is in default hereunder, (i) there shall be
no Mandatory Conversion, (ii) Holder shall retain all of its rights set forth in
Section 15 below, and (iii) Holder may, in addition to its other rights,
unilaterally extend the Maturity Date by one (1) year by providing written
notice to the Company on or before the Maturity Date.
6. The Holder recognizes that the Company may be limited in the number of
shares of Common Stock it may issue by (i) reason of its authorized shares, or
(ii) the applicable rules and regulations of the principal securities market on
which the Common Stock is listed or traded (collectively, the "Cap
Regulations"). Without limiting the other provisions hereof, (i) the Company
will take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Debentures without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
Holder of this Debenture (to the extent the same can not be converted in
compliance with the Cap Regulations (an "Unconverted Debenture"), shall have the
option, exercisable in the Holder's sole and absolute discretion, to elect any
one of the following remedies:
(x) require the Company to issue shares of Common Stock in
accordance with such Holder's Notice of Conversion relating to
the Unconverted Debenture at a conversion purchase price equal to
the average of the closing bid price per share of Common Stock
for any five (5) consecutive trading days (subject to the
equitable adjustments for certain events occurring during such
period as provided in this Debenture) during the sixty (60)
trading days immediately preceding the date of the Notice of
Conversion; or
(y) require the Company to redeem each Unconverted
Debenture for an amount (the "Cap Redemption Amount"), payable in
cash, equal to:
V x M
---------
CP
where:
"V" means the outstanding principal plus accrued interest
through the Cap Redemption Date (as defined below) of an
Unconverted Debenture;
5
"CP" means the Conversion Rate in effect on the date of
redemption (the "Cap Redemption Date") specified in the notice
from the Holder electing this remedy; and
"M" means the average closing ask price during the period
beginning on the Cap Redemption Date and ending on the date of
payment of the Cap Redemption Amount.
The holder of an Unconverted Debenture may elect one of the above remedies with
respect to a portion of such Unconverted Debenture and the other remedy with
respect to other portions of the Unconverted Debenture.
7. Subject to the terms of the Securities Purchase Agreement, no
provision of this Debenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency, herein
prescribed. This Debenture and all other Debentures now or hereafter issued of
similar terms are direct obligations of the Company.
8. If the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another person and
the holders of the Common Stock are entitled to receive stock, securities or
property in respect of or in exchange for Common Stock, then as a condition of
such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which shall
be as nearly equivalent as may be practicable. In the event of any proposed
merger, consolidation or sale or transfer of all or substantially all of the
assets of the Company (a "Sale"), the Holder hereof shall have the right to
convert by delivering a Notice of Conversion to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company. In the event the Holder
hereof shall elect not to convert, the Company may prepay all outstanding
principal and accrued interest on this Debenture by paying the Redemption Amount
contemplated by Section 5 hereof, less all amounts required by law to be
deducted, upon which tender of payment following such notice, the right of
conversion shall terminate.
9. If, for any reason, prior to the Conversion Date or the Redemption
Payment Date, the Company spins off or otherwise divests itself of a part of its
business or operations or disposes all or of a part of its assets in a
transaction (the "Spin Off") in which the Company does not receive compensation
for such business, operations or assets, but causes securities of another entity
(the "Spin Off Securities") to be issued to security holders of the Company,
then the Company shall cause (i) to be reserved Spin Off Securities equal to the
number thereof which would have been issued to the Holder had all of the
Holder's Debentures outstanding on the
6
record date (the "Record Date") for determining the amount and number of Spin
Off Securities to be issued to security holders of the Company (the "Outstanding
Debentures") been converted as of the close of business on the trading day
immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to
be issued to the Holder on the conversion of all or any of the Outstanding
Debentures, such amount of the Reserved Spin Off Shares equal to (x) the
Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the
numerator is the principal amount of the Outstanding Debentures then being
converted, and (II) the denominator is the principal amount of the Outstanding
Debentures.
10. If, at any time while any portion of this Debenture remains
outstanding, the Company effectuates a stock split or reverse stock split of its
Common Stock or issues a dividend on its Common Stock consisting of shares of
Common Stock, the Conversion Price shall be equitably adjusted to reflect such
action. By way of illustration, and not in limitation, of the foregoing (i) if
the Company effectuates a 2:1 split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such split, the Base Price shall be deemed to be one-half of what
it had been calculated to be immediately prior to such split; (ii) if the
Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with
respect to any conversion for which the Company issues the shares after the
record date of such reverse split; and (iii) if the Company declares a stock
dividend of one share of Common Stock for every 10 shares outstanding,
thereafter, with respect to any conversion for which the Company issues the
shares after the record date of such dividend, the Base Price shall be deemed to
be the amount of such Base Price calculated immediately prior to such record
date multiplied by a fraction, of which the numerator is the number of shares
(10) for which a dividend share will be issued and the denominator is such
number of shares plus the dividend share(s) issuable or issued thereon (11).
11. All payments contemplated hereby to be made "in cash" shall be made in
immediately available good funds in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts. All payments of cash and each delivery of shares of Common Stock
issuable to the Holder as contemplated hereby shall be made to the Holder at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time; except that the Holder can designate,
by notice to the Company, a different delivery address for any one or more
specific payments or deliveries.
12. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
13. This Debenture and all agreements entered into in connection herewith
shall be governed by and interpreted in accordance with the laws of the State of
California for contracts
7
to be wholly performed in such state and without giving effect to the principles
thereof regarding the conflict of laws. Any litigation based thereon, or arising
out of, under, or in connection with, this agreement or any course of conduct,
course of dealing, statements (whether oral or written) or actions of the
Company or Holder shall be brought and maintained exclusively in the state or
Federal courts of the State of California, sitting in the City of Los Angeles.
The Company hereby expressly and irrevocably submits to the jurisdiction of the
state and federal Courts of the State of California for the purpose of any such
litigation as set forth above and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with such litigation. The Company
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of
California. The Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court referred
to above and any claim that any such litigation has been brought in any
inconvenient forum. To the extent that the Company has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, the Company
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the related agreements entered into in connection herewith.
14. In the event that any action is taken by the Company or Holder in
connection with this Debenture, or any related document or matter, the losing
party in such legal action, in addition to such other damages as he or it may be
required to pay, shall pay reasonable attorneys' fees to the prevailing party.
15. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest
on this Debenture and same shall continue for a period of three
(3) days after its receipt of written notice thereof; or
b. Any of the representations or warranties made by the Company
herein, in the Securities Purchase Agreement, the Registration
Rights Agreement or in any certificate or financial or other
written statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery of this
Debenture or the Securities Purchase Agreement shall be false or
misleading in any material respect at the time made; or
c. The Company fails to issue shares of Common Stock to the Holder
or to cause its Transfer Agent to issue shares of Common Stock
upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Debenture, fails to
transfer or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture
or
8
the Registration Rights Agreement, and such transfer is otherwise
lawful, or fails to remove any restrictive legend or to cause its
Transfer Agent to transfer on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this
Debenture as and when required by this Debenture, the Agreement
or the Registration Rights Agreement and such legend removal is
otherwise lawful, and any such failure shall continue uncured for
five (5) business days; or
d. The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition,
agreement or obligation of this Debenture and such failure shall
continue uncured for a period of twenty (20) days after written
notice from the Holder of such failure; or
e. The Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement or
obligation of the Company under the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrant and
such failure shall continue uncured for a period of twenty (20)
days after written notice from the Holder of such failure (other
than a failure to cause the Registration Statement to become
effective no later than the Required Effective Date, as defined
and provided in the Registration Rights Agreement, as to which no
such cure period shall apply); or
f. The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the
benefit of creditors or commence proceedings for its dissolution;
or (3) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of its
property or business; or
g. A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60)
days after such appointment; or
h. Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties
or assets of the Company and shall not be dismissed within sixty
(60) days thereafter; or
i. Any money judgment, writ or warrant of attachment, or similar
process in excess of Two Hundred Thousand ($200,000) Dollars in
the aggregate shall be entered or filed against the Company or
any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for
9
a period of sixty (60) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
j. Bankruptcy, reorganization, insolvency or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any
law for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be
dismissed within sixty (60) days after such institution or the
Company shall by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any
such proceeding; or
k. The Company shall have its Common Stock suspended or delisted
from an exchange or The Nasdaq National Market System from
trading for in excess of five (5) trading days.
l. An Event of Default has occurred under the terms of any other
Debenture (in this series) issued pursuant to the Securities
Purchase Agreement.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, at its option,
consider this Debenture immediately due and payable in cash (and not by
conversion into Common Stock), without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, anything herein or in any
note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately enforce any and all of the Holder's rights and remedies
provided herein, or any other rights or remedies afforded by law.
16. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
17. In the event for any reason, any payment by or act of the Company or
the Holder shall result in payment of interest which would exceed the limit
authorized by or be in violation of the law of the jurisdiction applicable to
this Debenture, then IPSO FACTO the obligation of the Company to pay interest or
perform such act or requirement shall be reduced to the limit authorized under
such law, so that in no event shall the Company be obligated to pay any such
interest, perform any such act or be bound by any requirement which would result
in the payment of interest in excess of the limit so authorized. In the event
any payment by or act of the Company shall result in the extraction of a rate of
interest in excess of a sum which is lawfully
10
collectible as interest, then such amount (to the extent of such excess not
returned to the Company) shall, without further agreement or notice between or
by the Company or the Holder, be deemed applied to the payment of principal, if
any, hereunder immediately upon receipt of such excess funds by the Holder, with
the same force and effect as though the Company had specifically designated such
sums to be so applied to principal and the Holder had agreed to accept such sums
as an interest-free prepayment of this Debenture. If any part of such excess
remains after the principal has been paid in full, whether by the provisions of
the preceding sentences of this Section 17 or otherwise, such excess shall be
deemed to be an interest-free loan from the Company to the Holder, which loan
shall be payable immediately upon demand by the Company. The provisions of this
Section 17 shall control every other provision of this Debenture.
18. Time is of the essence as to the performance of each and every
obligation of the Company and Holder pursuant to this Debenture.
19. A. On the conditions that the Company (i) is not in default under this
Debenture (and no event has occurred that would ripen into a default with the
passage of time), and (ii) has previously honored all prior Redemption Notices,
the Company may, at its option, repay, in whole or in part, the then outstanding
principal and interest balance of this Debenture on the date of the Redemption
Notice (after deducting the principal and interest subject to outstanding
Conversion Notices) at the Redemption Price (as defined below). This Debenture
is redeemable, in whole or in part, by the Company by providing written notice
(the "REDEMPTION NOTICE") to the Holder via facsimile at its address set forth
herein (the Business Day between the hours of 6:30 a.m. and 3:00 p.m. Pacific
Time the Redemption Notice is received by the Holder via facsimile is defined to
be the "REDEMPTION NOTICE DATE"). Within seven (7) Trading Days after the
Redemption Notice Date the Company shall make payment of the Redemption Price
(as defined below) in immediately available funds to the Holder (such date of
payment referred to as the "REDEMPTION DATE"). Partial redemptions shall be in
an aggregate principal amount of at least $400,000.
B. In the event the Company serves a Redemption Notice, the Redemption
Price shall be equal to the greater of (i) 125% of the outstanding principal and
interest balance of the Debenture, or (ii) the "Economic Benefit" of the
principal and interest of the Debenture which are the subject of such Redemption
Notice. "ECONOMIC BENEFIT" shall mean the dollar value derived if the principal
(and interest) which was the subject of the Redemption Notice was converted on
the Redemption Notice Date and sold on the Redemption Notice Date at the Closing
Bid Price of the Common Stock on the Redemption Notice Date.
C. The Notice of Redemption shall set forth (i) the Redemption Date and
the place fixed for redemption, (ii) the Redemption Price, (iii) a statement of
or reference to the conversion right set forth herein, and (iv) confirmation
that the Company has the full Redemption Price reserved as set forth in F.
below. The notice shall specify the principal and interest balance hereof to be
redeemed. Within seven (7) Trading Days of the Redemption Notice Date, the
Company shall wire transfer the
11
appropriate amount of funds to the Holder. If the Company fails to comply with
the redemption provisions set forth herein by the seventh Trading Day after the
Redemption Notice Date (or in the case of a public offering as contemplated in
F. below, by the seventh Trading Day after the Redemption Notice Date) relating
to the Redemption Notice, the redemption will be declared null and void and the
Company shall not be permitted to serve another Redemption Notice. For the first
five Trading Days after the Redemption Notice Date, the Holder will retain its
conversion rights with respect to a maximum of twenty percent (20%) of the
principal and interest amount subject to the redemption. If the Holder elects to
so convert the said principal and interest after the receipt of the Redemption
Notice, the Company must receive notice of such election within two (2) business
days from the time the Redemption Notice was received by the Holder. In the
event the Company has not complied with the redemption provisions set forth
herein the Company must comply with the delivery requirements of any then
outstanding Conversion Notice as set forth herein. If the entire balance of
interest and principal of this Debenture is redeemed hereunder, the Holder shall
deliver to the Company the original of this Debenture within three (3) Business
Days after it has received good funds for the Redemption Price.
D. The Redemption Price shall be adjusted proportionally upon any
adjustment of the Conversion Price as provided herein and in the event
of any stock dividend, stock split, combination of shares or similar
event.
E. Intentionally Deleted.
F. The Company shall not be entitled to send any Redemption Notice and
begin the redemption procedure hereunder unless it has:
(a) the full amount of the Redemption Price in cash, available in a
demand or other immediately available account in a bank or
similar financial institution, specifically allotted for such
redemption;
(b) immediately available credit facilities, in the full amount of
the Redemption Price with a bank or similar financial institution
specifically allotted for such redemption; or
(c) a combination of the items set forth in (i) and (ii) above,
aggregating the full amount of the Redemption Price.
Notwithstanding the foregoing, in the event the redemption is expected to be
made contemporaneously with the closing of a public offering of the Company's
securities for an amount in excess of the Redemption Price, the Company shall
not be required to have the full amount of the Redemption Price available to it
as set forth above.
G. Upon its receipt of a Conversion Notice, the Company may, at its
option, repay that
12
portion of the accrued interest of this Debenture which is subject to such
outstanding Conversion Notice, at the Redemption Price, provided that the
Company delivers to Holder a Redemption Notice with respect thereto within two
(2) business days after the date of the subject Conversion Notice. On the
Redemption Date, the Company shall make payment of the Redemption Price in
immediately available funds to the Holder.
13
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: as of July 31, 2000
NETGATEWAY, INC., a Delaware corporation
By: /s/ DONALD M. CORLISS, JR.
---------------------------------------
Donald M. Corliss, Jr.
---------------------------------------
(Print Name)
President and Chief Operating Officer
---------------------------------------
(Title)
14
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $ ________________ of
the principal amount (and $________________ of accrued interest thereon) of the
above Debenture No. ___ into Shares of Common Stock of NETGATEWAY, INC., a
Delaware corporation (the "Company") according to the conditions hereof, as of
the date written below.
Conversion Date*
- -------------------------------------------------------------------
Applicable Conversion Price
- -----------------------------------------------------------
Signature
- ----------------------------------------------------------------------------
[Name]
Address:
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
* This original Debenture must be received by the Company or its transfer agent
by the third business day following the Conversion Date.