RESTRUCTURING AND AMENDMENT AGREEMENT
Restructuring and Amendment Agreement (this "Agreement") dated as of
January 25, 2001 by and between Netgateway, Inc., a Delaware corporation
("Netgateway") and King William, LLC, a Cayman Islands Limited Liability Company
("King William").
Whereas the parties have entered into (i) a Securities Purchase
Agreement (the "Purchase Agreement") dated July 31, 2000 pursuant to which
Netgateway issued to King William its 8% Convertible Debenture Due July 31, 2003
with an original principal amount of up to $4.5 million and an actual principal
amount of $2.5 million (the "Debenture") and warrants (the "King William
Warrants") pursuant to a Common Stock Purchase Warrant (the "King William
Warrant Agreement") dated as of July 31, 2000 to acquire a total of 231,000
shares of the common stock, par value $.001 per share of Netgateway (the "Common
Stock"), (ii) a Registration Rights Agreement dated July 31, 2000 (the
"Debenture Registration Rights Agreement"), (iii) a Private Equity Credit
Agreement dated August 2, 2000 (the "Equity Agreement") and (iv) a Registration
Rights Agreement dated August 2, 2000 (the "Equity Registration Rights
Agreement"; and together with the Debenture Registration Rights Agreement, the
"Registration Rights Agreements");
Whereas on September 7, 2000 Netgateway filed a registration statement
(the "Registration Statement") on Form S-1 as contemplated by the Registration
Rights Agreements which registration has not become effective;
Whereas effective with the opening of business on January 10, 2001 the
Common Stock was delisted from the NASDAQ National Market System and the Common
Stock is currently listed on the NASDAQ Bulletin Board;
Whereas no securities have been issued under the Equity Line; and
Whereas, the parties wish to amend certain of the terms of the
Debenture and the Registration Rights Agreements and to terminate the Equity
Agreement.
Now therefore, in consideration of the foregoing premises and of the
mutual covenants and agreements contained herein and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
agree as follows.
1. Repayment of Debenture. Netgateway agrees to repay the full amount
(including interest accrued to date thereon) of the Debenture plus a 15% premium
with respect to the original principal amount (the "Current Principal Amount")
in ten payments. As of the date of this Agreement the Current Principal Amount
is $2,972,789.90. An initial payment in the amount of $250,000 (the "Initial
Payment") shall be made within five business days of the date this Agreement is
executed. A second payment in the amount of $250,000 shall be made on or before
February 28, 2001. The remainder of the Current Principal Amount shall be paid
in ten equal payments of $247,278.99 beginning on April 10, 2001 and on the
tenth day of each successive month except that the tenth payment shall be made
on the same date as the ninth payment. Each such payment shall be made with
interest accrued through the date of payment at a rate of 8% per annum.
2. Waiver of Defaults. Netgateway is in breach and/or violation of and
may be declared to be in default under certain of the terms and provisions of
each of the Purchase Agreement, the Debenture, the King William Warrant
Agreement, the Registration Rights Agreements and the Equity Agreement. King
William hereby waives all such defaults and violations, whether known or unknown
existing on the date of this Agreement; provided, however, that, nothing
contained herein shall be construed to limit, impair or otherwise affect any
rights of King William with respect of any future non-compliance with any
covenant, term or provision of any such agreement. Section 15(k) of the
Debenture is amended to refer to "an exchange, the NASDAQ Bulletin Board or
another Principal Market" rather than "an exchange or the Nasdaq National Market
System."
3. Conversion of Debenture. The Notice of Conversion previously
delivered to Netgateway by King William is hereby rescinded and retracted. King
William further agrees that it will not issued any future conversion notice to
Netgateway unless either the Market Price of the Common Stock has been in excess
of $3.00 per share for at least 20 consecutive trading days (for example in
connection with a transaction that will result in a sale of Common Stock by King
William pursuant to Rule 144 in which case the resulting reduced principal
balance shall be deemed allocated so as to reduce each remaining principal
payment on the Debenture under Section 1 of this Agreement equally) or
Netgateway shall have failed to make any of the Required Principal Payments when
due and such payment shall remain unpaid after five days written notice from
King William (a "Special Default"). Any such conversion shall be at a Conversion
Rate (as defined in the Debenture) equal to the lesser of 80% of the Current
Market Price (as defined in the Debenture) and $1.79 and in connection with any
such conversion the portion of the principal amount of the Debenture which is
being converted which is attributable to the 15% premium added pursuant Section
1 of this Agreement shall be ignored and shall not be converted but instead
shall constitute a permanent deduction from and reduction to the principal
amount of the Debenture. The foregoing limitations on conversion are in addition
to, and not in substitution for, the limitations on conversion set out in the
Purchase Agreement and the Debenture.
4. Other Modifications to Purchase Agreement. No "Second Tranche" (as
defined in the Purchase Agreement) shall be available to Netgateway and no
additional amounts shall be advanced pursuant to the Purchase Agreement.
Compliance with Section 4(g) of the Purchase Agreement (including as referred to
in the Debenture) is hereby waived so long as Donald Danks or another person
approved by King William (such approval not to be unreasonably withheld or
delayed) is Chief Executive Officer of Netgateway and, in the event of a
termination of such waiver, securities issued after the date of termination of
such waiver based on options, warrants, conversion or exchange rights or other
agreements entered into prior to such termination shall not constitute a breach
thereof.
5. Registration Rights Agreements. Netgateway may withdraw the
Registration Statement. All Late Filing Penalties and Late Effective Penalties
accrued to date are hereby waived. If there shall be a Special Default the Late
Filing Penalties and the Late Effective Penalties waived under the prior
sentence shall be added back to the principal amount of the Debenture. The
Debenture Registration Rights Agreement is hereby amended (i) to provide that
the Required Filing Date for such agreement shall be thirty days following the
date of a Special Default, if any, and the Required Effective Date for such
agreement shall be 90 calendar days after the Required Filing Date and (ii) to
amend Section 3(i) to refer to "the NASDAQ Bulletin Board or a Primary Market"
rather than "the NASDAQ National Market System." Netgateway agrees to comply
with the provisions of the Registration Rights Agreements as so amended.
6. Termination of Equity Agreement. The Equity Agreement and the Equity
Registration Rights Agreement are each hereby terminated by mutual agreement and
neither Netgateway nor King William shall make any payments or issue any
warrants in connection therewith, nor shall either party have any future
liability or obligation to the other thereunder. Netgateway agrees that if it
elects to engage in a future transaction of the specific type contemplated by
the Equity Line at any time prior to December 31, 2001 then prior to entering
into such arrangement it will first discuss with King William the proposed terms
and conditions thereof with a view to affording King William an opportunity to
provide such financing.
7. Warrants. The exercise price of the King William Warrants is hereby
reduced to $.25 per share. Netgateway agrees to issue warrants to purchase an
additional 269,000 shares of Common Stock at an exercise price of $.25 per share
with a five year exercise period beginning on the date of this Agreement and
otherwise on the same terms and conditions as the King William Warrants.
8. Implementation. If the Initial Payment is not made within five
business days of the date of this Agreement then this Agreement shall be deemed
rescinded and shall be void and of no effect and no party shall have any
liability to the other hereunder except that Section 5, other than the second
sentence thereof, shall remain in effect but the Required Filing Date referred
to in Clause (i) thereof shall be the thirtieth day after the date King William
requests that such filing be made.
9. Release. Netgateway hereby releases King William and all of its
direct and indirect partners, officers, directors, employees, affiliates(both
persons and entities, agents, representatives, servants, trustees,
beneficiaries, predecessors in interest, successors in interest, assigns,
nominees and insurers from any and all claims it may have against King William
arising out of the conduct of King William through the date of this Agreement
with respect to the Purchase Agreement, the Equity Agreement and the
transactions completed pursuant thereto. Netgateway, Inc. acknowledges that it
is familiar with Section 1542 of the Civil Code of the State of California which
provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Netgateway hereby waives any and all rights and benefits that it now has or in
the future may have under Section 1542 of the Civil Code (and under the
comparable provisions of any other applicable law) and agrees and acknowledges
that this Agreement contains a full and final release applying to unknown and
unanticipated claims, injuries or damages arising out of the subject matter
hereof, as well as to those now known or disclosed. Netgateway represents,
warrants and covenants that it has not, and at the time this release becomes
effective will not have, sold, assigned, transferred or otherwise conveyed to
any other person or entity all or any portion of its rights, claims, demands,
actions or causes of action herein released.
10. Miscellaneous. Terms used herein but not defined herein shall have
the meanings assigned to them in the Purchase Agreement and the Debenture. King
William represents and warrants that it holds all right, title and interest in
and to the entire principal amount of the Debenture and all of the King William
Warrants. This Agreement shall be binding on all future holders of the Debenture
and of the King William Warrants and a new debenture reflecting the terms of
this Agreement shall be provided to King William in exchange for the current
Debenture held by it. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
Netgateway, Inc. King William, L.L.C.
By: _____________________________ By: _____________________________
Name: Name:
Title: Title: