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")
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.
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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.
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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;
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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.
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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:
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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.
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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]
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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
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ANNEX 1
PLEDGED STOCK
Certificate Registered
Issuer No. Owner Number of Shares
- ------ ----------- ----------- ----------------
Galaxy Enterprises 1445 John J. Poelman 100,000
1446 100,000
-------
Total: 200,000
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