PLEDGE AGREEMENT
This PLEDGE AGREEMENT (this "Agreement") dated as of February 4, 2000 is
made between JOHN J. POELMAN, in his individual capacity (the "Obligor") and
NETGATEWAY, INC., a Delaware corporation ("Netgateway"). (Capitalized terms used
but not defined herein shall have the meanings ascribed to them in the Note (as
hereinafter defined).
R E C I T A L S:
WHEREAS, Netgateway will advance $150,000 to Obligor and Galaxy
Enterprises, Inc., a Nevada corporation ("Galaxy", and together with Obligor,
collectively, the "Maker") pursuant to that certain Promissory Note of even date
herewith (the "Note"), and may in the future advance additional sums pursuant to
terms of additional promissory note and other agreements. Netgateway requires
that the Obligor execute and deliver, and grant the Liens provided for in, this
Agreement prior to advancing any sums to Galaxy.
WHEREAS, Obligor is a founder, officer and shareholder of Galaxy and will
benefit substantially by reason of Netgateway's advancing sums to Galaxy.
NOW, THEREFORE, to induce Netgateway to advance such sums and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Obligor has agreed to pledge and grant a security interest in
the Collateral as security for the performance of any and all obligations of the
Maker for the performance by it of its agreements, covenants and undertakings
under or in respect of the Note or this Agreement (the "Secured Obligations").
Section 1. Pledge.
a. Grant. As collateral security for the prompt payment in full when
due (whether at stated maturity, by acceleration or otherwise) and
performance of the Secured Obligations, the Obligor hereby pledges and
grants to Netgateway a security interest in all of the Obligor's right,
title and interest in and to the following property, whether now owned or
hereafter acquired by the Obligor and whether now existing or hereafter
coming into existence (collectively, the "Collateral"):
i. 100,000 shares of common stock of Galaxy represented by the
respective certificates identified in Annex 1, together with the
certificates representing the same (collectively, the "Pledged
Stock");
ii. all shares, securities, moneys or property representing a
dividend on, or a distribution or return of capital in respect of any
of the Pledged Stock, resulting from a split-up, revision,
reclassification or other like change of any of the Pledged Stock or
otherwise received in exchange for any of the Pledged Stock and all
other rights issued to the holders of, or otherwise in respect of, any
of the Pledged Stock;
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
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the Collateral hereunder, any endorsements, assignments, bills of sale or other
instruments of conveyance or transfer with respect to all or any part of the
Collateral.
e. Special Provisions Relating to Stock Collateral.
i. So long as no Event of Default shall have occurred and be
continuing, the Obligor shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Stock
Collateral; and Netgateway shall, at the Obligor's expense, execute
and deliver to the Obligor or cause to be executed and delivered to
the Obligor all such proxies, powers of attorney, dividend and other
orders and other instruments, without recourse, as the Obligor may
reasonably request for the purpose of enabling the Obligor to exercise
the rights and powers which it is entitled to exercise pursuant to
this Section 2.e.
ii. So long as no Event of Default shall have occurred and be
continuing, the Obligor shall be entitled to receive and retain any
dividends on the Stock Collateral paid in cash out of earned surplus.
iii. If any Event of Default shall have occurred and be
continuing, and whether or not Netgateway exercises any available
right to declare any Secured Obligation due and payable or seeks or
pursues any other right, remedy, power or privilege available to it
under applicable law, this Agreement or the Note, all dividends and
other distributions on the Stock Collateral shall be paid directly to
Netgateway and retained by it as part of the Stock Collateral, subject
to the terms of this Agreement, and, if Netgateway shall so request,
the Obligor agrees to execute and deliver to Netgateway appropriate
additional dividend, distribution and other orders and instruments to
that end, provided that if such Event of Default is cured, any such
dividend or distribution paid to Netgateway prior to such cure shall,
upon request of the Obligor (except to the extent applied to the
Secured Obligations), be returned by Netgateway to the Obligor.
f. Collateral Protection. If, on any date following the date of this
Agreement and the Note (the "Calculation Date"), the arithmetic mean of the
closing bid price of the common stock as reported on the OTC Bulletin Board
for the 5 consecutive trading days ending on the trading day preceding the
Calculation Date (the "Calculated Price") is equal to or less than 75% of
the closing bid price of the common stock of Galaxy on the date of this
Agreement and the Note (the "Closing Price"), then within 10 days after the
Calculation Date, Obligor shall deliver to Netgateway certificates
representing an additional number of shares of Galaxy's common stock equal
to (i) the difference, in dollars, between the Closing Price and the
Calculated Price, multiplied by the number of shares of the common stock of
Galaxy representing the Stock Collateral, divided by (ii) the Calculated
Price.
g. Termination. Galaxy and Netgateway intend to enter into the Merger
Agreement pursuant to which Galaxy Acquisition Corp. shall merge with and
into Galaxy and Galaxy will become a wholly-owned subsidiary of Netgateway
(the "Transaction"). This Agreement shall terminate when (i) all Secured
Obligations shall have been paid in full, or (ii) all conditions precedent
to the
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Transaction shall have been satisfied or waived. Upon termination of this
Agreement, Netgateway shall forthwith cause to be assigned, transferred and
delivered, against receipt but without any recourse, warranty or
representation whatsoever, any remaining Collateral and money received in
respect of the Collateral, to or on the order of the Obligor.
Section 2. Representations and Warranties. As of the date hereof, the
Obligor represents and warrants to Netgateway as follows:
a. Title. The Obligor is the sole beneficial owner of the Collateral
in which it purports to grant a lien pursuant to this Agreement, and such
Collateral is free and clear of all liens and other rights in favor of any
other person.
b. Pledged Stock. The Pledged Stock evidenced by the certificates
identified in Annex 1 is duly authorized, validly existing, fully paid and
nonassessable, and none of such Pledged Stock is subject to any contractual
restriction, or any restriction under the charter or by-laws of Galaxy of
such Pledged Stock, upon the transfer of such Pledged Stock.
c. No Breach. None of the execution and delivery of this Agreement,
the consummation of the transactions contemplated by this Agreement or
compliance with the terms and provisions of this Agreement will conflict
with or result in a breach of, or require any consent under any applicable
law, or any agreement or instrument to which the Obligor is a party or by
which he is bound or to which he is subject.
Section 3. Further Assurances. The Obligor agrees that, from time to time
upon the written request of Netgateway, the Obligor will execute and deliver
such further documents and do such other acts and things as Netgateway may
reasonably request in order fully to effect the purposes of this Agreement.
Section 4. Remedies.
a. Events of Default, Etc. Without limitation on the rights, remedies,
powers and privileges of Netgateway under Section 1, if any Event of
Default shall have occurred and be continuing:
i. Netgateway in its discretion may, in its name or in the name
of the Obligor or otherwise, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of or
in exchange for all or any part of the Collateral, but shall be under
no obligation to do so;
ii. Netgateway in its discretion may, upon five business days'
prior written notice to the Obligor of the time and place, with
respect to all or any part of the Collateral which shall then be or
shall thereafter come into the possession, custody or control of
Netgateway or any of its agents, sell, lease or otherwise dispose of
all or any part of such Collateral, at such place or places as
Netgateway deems best, for cash, for credit or for future delivery
(without thereby assuming any credit risk) and at public or private
sale, without demand of performance or notice of intention to effect
any such disposition or of time or place of any such sale (except such
notice as is required above or by applicable statute and cannot be
waived), and Netgateway or
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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
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to Netgateway shall have no obligation to engage in public sales and
no obligation to delay the sale of any Collateral for the period of
time necessary to permit Galaxy to register it for public sale.
d. Application of Proceeds. Except as otherwise expressly provided in
this Agreement, the proceeds of, or other realization upon, all or any part
of the Collateral by virtue of the exercise of remedies hereunder, and any
other cash at the time held by Netgateway hereunder, shall be applied by
Netgateway:
First, to the payment of the costs and expenses of such exercise of
remedies, including reasonable out-of-pocket costs and expenses of
Netgateway, the fees and expenses of its agents and counsel and all other
expenses incurred and advances made by Netgateway in that regard;
Next, to the payment in full of the remaining Secured Obligations in
such manner as Netgateway may determine; and
Finally, to the payment to the Obligor, or its respective successors
or assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining.
As used in this Section, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in
kind of, Collateral, including any property received under any bankruptcy,
reorganization or other similar proceeding as to the Obligor or any issuer
of, or account debtor or other obligor on, any of the Collateral.
Section 5. Miscellaneous.
a. Waiver. No failure on the part of Netgateway to exercise and no
delay in exercising, and no course of dealing with respect to, any right,
remedy, power or privilege under this Agreement shall operate as a waiver
of such right, remedy, power or privilege, nor shall any single or partial
exercise of any right, remedy, power or privilege under this Agreement,
preclude any other or further exercise of any such right, remedy, power or
privilege or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges provided in this Agreement are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
b. Notices. All notices and communications to be given under this
Agreement shall be given or made in writing to the intended recipient at
the address specified below or, as to any party, at such other address as
shall be designated by such party in a notice to each other party. Except
as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telex or telecopier,
delivered to the telegraph or cable office or personally delivered or, in
the case of a mailed notice, upon receipt, in each case, given or addressed
as provided in this Section 5.b:
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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.
e. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Obligor, Netgateway and each holder of any
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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
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Certificate Registered
Issuer No. Owner Number of Shares
- ------ ----------- ---------- ----------------
Galaxy Enterprises John J. Poelman 100,000
Total: 100,000
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