ANNEX IV
TO SECURITIES PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 31, 2000 (this
"Agreement"), is made by and between NETGATEWAY, INC., a Delaware corporation
(the "Company"), and the entity named on the signature page hereto (the "Initial
Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of July 31, 2000, between the Initial Investor and
the Company (the "Securities Purchase Agreement"; capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor a 8% Convertible Debenture, in the principal amount of
$4,500,000 (the "Debenture") which term, as used herein shall have the meaning
ascribed to it in the Securities Purchase Agreement); and
WHEREAS, the Company has agreed to issue the Warrants to the Initial
Investor in connection with the issuance of the Debenture; and
WHEREAS, the Debenture is convertible into shares of Common Stock (the
"Conversion Shares") upon the terms and subject to the conditions set forth
therein; and
WHEREAS, the Warrants to be issued to the Initial Investor may be exercised
for the purchase of shares of Common Stock (the "Warrant Shares") upon the terms
and conditions of the Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investor hereby agree as follows:
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1. DEFINITIONS. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Investor" means the Initial Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(b) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by determinations in good faith
by the Board of Directors of the Company that disclosure of such information in
the registration statement would be detrimental to the business and affairs of
the Company; or (ii) any material engagement or activity by the Company which
would, in the good faith determination of the Board of Directors of the Company,
be adversely affected by disclosure in a registration statement at such time,
which determination shall be accompanied by a good faith determination by the
Board of Directors of the Company that the registration statement would be
materially misleading absent the inclusion of such information.
(c) "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing a Registration Statement or Statements in
compliance with the Securities Act and pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange SEC (the
"SEC").
(d) "Registrable Securities" means the Conversion Shares and the Warrant
Shares.
(e) "Registration Statement" means a registration statement of the Company
under the Securities Act.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, as soon as possible after the Closing Date, but no later than thirty (30)
days following the Closing Date, a Registration Statement on Form S-1, or other
available form, registering for resale by the Investor all of the Registrable
Securities, but in no event less than two hundred percent (200%) of the
aggregate number of shares into (i) which the Debentures would be convertible at
the time of filing of the Registration Statement (assuming for such purposes
that the entire principal and interest balance of all Debentures had been
eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such eligibility or conversion had
in fact occurred as of such date), and (ii) which would be issued upon exercise
of all of the Warrants at the time of filing of the Registration Statement
(assuming
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for such purposes that all such Warrants had been eligible to be exercised and
had been exercised in accordance with their terms, whether or not such
eligibility or exercise had in fact occurred as of such date). The Registration
Statement shall also state that, in accordance with Rule 416 and 457 under the
Securities Act, it also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon conversion of the Debentures and the
exercise of the Warrants (and the Existing Warrants) to prevent dilution
resulting from stock splits, or stock dividends. The Company will use its best
efforts to cause the Registration Statement to be declared effective no later
than ninety (90) days after the Closing Date. If at any time the number of
shares of Common Stock into which the Debentures may be converted and which
would be issued upon exercise of the Warrants equals more than seventy five
percent (75%) of the aggregate number of shares of Common Stock then registered,
the Company shall, within ten (10) business days after receipt of a written
notice from any Investor, either (i) further amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such Registration
Statement has not been declared effective by the SEC at that time, to register
200% of the aggregate of all shares of Common Stock into which the Debentures
may then or in the future be converted and which would be issued currently or in
the future upon exercise of the Warrants (including, without limitation, the
Warrants to be issued upon the Second Closing Date), or (ii) if such
Registration Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form S-1, or other
available forum as may be appropriate, to register (A) 200% of the aggregate
shares of Common Stock into which the Debentures may then or in the future be
converted and which would be issued currently or in the future upon exercise of
the unexercised Warrants, less (B) the aggregate number of shares of Common
Stock already registered which have not been issued upon conversions of the
Debentures or the exercise of Warrants. THE REGISTRATION STATEMENT SHALL NOT
INCLUDE ANY SHARES OTHER THAN THE REGISTRABLE SECURITIES, AND CERTAIN OTHER
SHARES THAT THE COMPANY IS OBLIGATED TO REGISTER AS SET FORTH IN SCHEDULE 5(b),
WITHOUT THE CONSENT OF THE INVESTOR.
(B) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable Securities is
not filed with the SEC on or before thirty (30) days after the Closing Date (the
"Required Filing Date"), then the Company shall pay Investor a late filing
penalty (collectively "Late Filing Penalties"), (i) on the first day after the
Required Filing Date, an amount equal to two percent (2%) of the original
purchase price paid pursuant to the Securities Purchase Agreement (the "Purchase
Price") for the Debentures, and (ii) on each subsequent monthly anniversary of
the Required Filing Date, if the Registration Statement has not been filed in
proper form on or before such date, an amount equal to three percent (3%) of the
Purchase Price for the Debenture.
(ii) If the Registration Statement covering the Registrable Securities is
not effective within the earlier of (a) five (5) business days after notice by
the SEC that it may be declared effective (including the issuance by the SEC of
a "no review letter"), or (b) ninety (90) days following the Closing Date (the
"Required Effective Date"), then the Company shall pay Investor a late effective
date penalty (collectively "Late Effective Date Penalties")(sometimes
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Late Filing Penalties and Late Effective Penalties are collectively referred to
as "Late Penalties"), (i) on the first day after the Required Effective Date, an
amount equal to two percent (2%) of the Purchase Price for the Debentures and
(ii) on each subsequent monthly anniversary of the Required Effective Date, if
the Registration Statement has not been declared effective on or before such
date, an amount equal to three percent (3%) of the Purchase Price for the
Debenture.
(iii) By way of illustration and not in limitation of the foregoing,
assuming a Closing Date of February 3, 2000 (X) if the Registration Statement is
timely filed but is not declared effective until July 15, 2000 (assuming for the
purpose of this example that the SEC has not previously provided notice that it
may be declared effective), the aggregate Late Effective Date Penalty will equal
8% percent of the Purchase Price (2% on May 3, the 90th day after the Closing
Date, plus 3% each on June 2, and July 2) or (Y) if the Registration Statement
is filed on April 9 and is not declared effective until June 15, 2000 (assuming
for the purpose of this example that the SEC has not previously provided notice
that it may be declared effective), the aggregate Late Filing Penalty will equal
5% of the Purchase Price (2% on March 4, the 30th day after the Closing Date,
plus 3% on April 3) and the aggregate Late Effective Date Penalty will equal 5%
percent of the Purchase Price (2% on May 3, the 90th day after the Closing Date,
plus 3% on June 2). Notwithstanding anything to the contrary herein, the penalty
shall only apply to the portion of the Purchase Price paid by the Investor on
the Closing Date (and not the Second Closing Date, as defined in the Debenture).
(iv) In addition to and not in lieu of the payment of penalties hereunder,
if the Registration Statement is not filed within sixty (60) days after the
Closing Date, or the Registration Statement is not declared effective within one
hundred eighty (180) days after the Closing Date, Investor may, at its option,
require the Company, to redeem the Debentures in full (within three (3) days
after its delivery of a redemption notice to the Company), in cash, which
redemption amount shall be calculated as set forth in Section 6 of the
Debenture.
(v) Late Penalties will be payable to the Investor by the Company in cash
or other immediately available funds on the date such Late Penalty is incurred.
(vi) The parties acknowledge that the damages which may be incurred by the
Investor if the Registration Statement is not filed by the Required Filing Date
or if the Registration Statement has not been declared effective by the Required
Registration Date may be difficult to ascertain. The parties agree that the Late
Penalties represent a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages. The payment of the Late
Penalties to the Investor shall not limit the Investor's other rights and
remedies hereunder or under any other document entered into in connection
herewith.
(vii) Notwithstanding the foregoing, the amounts payable by the Company
pursuant to this provision shall not be payable to the extent any delay in the
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effectiveness of the Registration Statement occurs because of an act of, or a
failure to act or to act timely by the Investor or its counsel if the Company
timely forwards to counsel any required documents or in the event all of the
Registrable Securities may be sold pursuant to Rule 144 or another available
exemption under the Act.
3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the
Registrable Securities, the Company shall do each of the following.
(a) Prepare promptly, and file with the SEC by the Required Filing Date,
the Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause each Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times until the earliest (the
"Registration Period") of (i) the date that is two (2) years after the Closing
Date, (ii) the date when the Investor may sell all Registrable Securities under
Rule 144 of the Securities Act ("Rule 44") or (iii) the date the Investor no
longer owns any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration Statement effective at all times during the Registration
Period, and, during the Registration Period, comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities of
the Company covered by the Registration Statement until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statement;
(c) The Company shall permit counsel designated by the Investor to review
the Registration Statement and all amendments and supplements thereto a
reasonable period of time (but not less than three (3) business days) prior to
their filing with the SEC, and not file any document in a form to which such
counsel reasonably objects.
(d) Notify the Investor and managing underwriters, if any, immediately
(and, in the case of (i)(A) below, not less than five (5) days prior to such
filing) and (if requested by any such Person) confirm such notice in writing no
later than one (1) business day following the day (i)(A) when a prospectus or
any prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) whenever the SEC notifies the Company
whether there will be a "review" of such Registration Statement; (C) whenever
the Company receives (or representatives of the Company receive on its behalf)
any oral or written comments from the SEC in respect of a Registration Statement
(copies or, in the case of oral comments,
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summaries of such comments shall be promptly furnished by the Company to the
Investor); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) Business Day in advance of the
filing of such responses with the SEC so that the Investor shall have the
opportunity to comment thereon.
(e) Furnish to Investor (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one (1)
copy of the Registration Statement, each preliminary prospectus and prospectus,
and each amendment or supplement thereto, and (ii) such number of copies of a
prospectus, and all amendments and supplements thereto and such other documents,
as Investor may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by Investor;
(f) As promptly as practicable after becoming aware of such event, notify
Investor of the happening of any event of which the Company has knowledge, as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to Investor as it may reasonably request;
(g) As promptly as practicable after becoming aware of such event, notify
Investor (or, in the event of an underwritten offering, the managing
underwriters) of the issuance
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by the SEC of a Notice of Effectiveness or any notice of effectiveness or any
stop order or other suspension of the effectiveness of the Registration
Statement at the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to time
after the date of effectiveness of the Registration Statement, the Company
notifies the Investor in writing of the existence of a Potential Material Event,
the Investor shall not offer or sell any Registrable Securities, or engage in
any other transaction involving or relating to the Registrable Securities, from
the time of the giving of notice with respect to a Potential Material Event
until Investor receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer constitutes
a Potential Material Event; PROVIDED, HOWEVER, that the Company may not so
suspend the right to such holders of Registrable Securities for more than two
twenty (20) day periods in the aggregate during any 12-month period ("Suspension
Period") with at least a ten (10) business day interval between such periods,
during the periods the Registration Statement is required to be in effect;
(i) Use its reasonable efforts to secure or maintain, as applicable, Nasdaq
National Market System authorization and quotation for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities;
(j) Provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities not later than the effective date of the
Registration Statement;
(k) Cooperate with the Investor who holds Registrable Securities (or,
subject to receipt by the Company of appropriate notice and documentation, as
may be required by the Securities Purchase Agreement, the Debentures, the
Warrants or this Agreement, securities convertible into Registrable Securities)
being offered to facilitate the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant to the Registration
Statement and enable such certificates for the Registrable Securities to be in
such denominations or amounts as the case may be, as the Investor may reasonably
request, and, within five (5) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investor whose Registrable Securities or securities convertible into Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; provided, however, that nothing in this
subparagraph (j) shall be deemed to waive any of the provisions regarding the
conditions or method of conversion of the Debentures or exercise of Warrants
into Registrable Securities; and
(l) Take all other reasonable actions necessary to expedite and facilitate
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
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4. OBLIGATIONS OF THE INVESTOR. In connection with the registration of the
Registrable Securities, Investor shall have the following obligations:
(a) As a condition precedent to the obligations of the Company to complete
the registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor, Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of the Registrable Securities held by it, as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least five (5) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
Investor of the information the Company requires from Investor (the "Requested
Information") if Investor elects to have any of its Registrable Securities
included in the Registration Statement. If at least two (2) business days prior
to the filing date the Company has not received the Requested Information from
an Investor (a "Non-Responsive Investor"), then the Company may file the
Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) To cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder, unless Investor has notified the Company in writing of its election
to exclude all of its Registrable Securities from the Registration Statement;
and
(c) Upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e) or 3(f), above, Investor shall
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until Investor's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3(e) or 3(f) and, if so directed by the Company, Investor shall deliver
to the Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in Investor's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses (other than
underwriting discounts and commissions of Investor) incurred in connection with
registrations, filings or qualifications pursuant to Section 3, including,
without limitation, all registration, listing, and qualifications fees, printers
and accounting fees, the fees and disbursements of counsel for the Company, and
a reasonable fee for Investor's legal counsel not exceeding $5,000, shall be
borne by the Company.
(b) Except as and to the extent specifically set forth in Schedule 5(b)
attached hereto, neither the Company nor any of its subsidiaries has, as of the
date hereof, nor shall the Company nor any of its subsidiaries, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Investor herein or otherwise
conflicts with the provisions hereof. Except as and to the extent specifically
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set forth in Schedule 5(b) attached hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to any of its securities to any person or entity. Without
limiting the generality of the foregoing, without the written consent of the
Investor, the Company shall not grant to any person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Investor set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
6. INDEMNIFICATION. In the event any Registrable Securities are included in
a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless Investor, its directors, officers, managers, representatives, agents
and "controlling persons" within the meaning of the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (each, an
"Indemnified Person" or "Indemnified Party"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations in the
Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to clause (b) of this Section 6, the Company shall reimburse the Investor,
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by it in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a) shall not (I) apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of the
Investor to deliver or cause to be delivered the prospectus made available by
the Company; or (III) apply to amounts paid in settlement of any Claim if such
settlement is effected without the
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prior written consent of the Company, which consent shall not be unreasonably
withheld. Investor will indemnify the Company and its officers, directors and
agents against any claims arising out of or based upon a Violation which occurs
in reliance upon and in conformity with information furnished in writing to the
Company, by or on behalf of Investor, expressly for use in connection with the
preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investor pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under this
Section 6, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be. In case any
such action is brought against any Indemnified Person or Indemnified Party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6 for
any reasonable legal or other reasonable out-of-pocket expenses subsequently
incurred by such Indemnified Person or Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action of its final conclusion. The
Indemnified Person or Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and reasonable out-of-pocket expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the Indemnified
Person or Indemnified Party. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying party
is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6
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to the fullest extent permitted by law; PROVIDED, HOWEVER, that (a) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investor the benefits of Rule 144, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) furnish to Investor so long as Investor owns Registrable Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company and (iii)
such other information as may be reasonably requested to permit the Investor to
sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned by an Investor to any transferee of the Registrable
Securities (or all or any portion of the Debenture of the Company which is
convertible into such securities) permitted or allowable by the terms of the
Securities Purchase Agreement only if: (a) Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with or in favor of the Company to be bound by all of the provisions
contained herein, a copy of which shall be provided to the Company. The copies
referred to in clauses (a) and (d) of the immediately preceding sentence may be
redacted to delete certain financial and other details of the transaction
between the Investor and its transferee if the same is included in the document
to be provided to the Company. In the event of any delay in filing or
effectiveness of the
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Registration Statement as a result of such assignment, the Company shall not be
liable for any damages arising from such delay, or the payments set forth in
Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of each such Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investor. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable Securities
whenever such person or entity owns of record such Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.
(b) Any notice or communication required or permitted by this Agreement
shall be given in writing addressed as follows:
If to Company: Netgateway, Inc.
000 Xxxxxxxxx, 0xx Xxxxx
Xxxx Xxxxx, XX 00000
ATTN: CEO
Telephone No.: (000) 000-0000
Telecopier No.: (000) 000-0000
with a copy to:
Nida & Xxxxxxx, LLP
000 Xxxxxxx Xx.
Xxxxx Xxxxxxx, XX 00000
Attention: C. Xxxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Investor: King Xxxxxxx, LLC
x/x Xxxxxxxxx Xxxxxxxxxx
X.X. Xxx 000
Xxxx Xxxx
Xxxxxxx, Xxxxxxx Xxxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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All notices shall be served personally by telecopy, by telex, by overnight
express mail service or other overnight courier, or by first class registered or
certified mail, postage prepaid, return receipt requested. If served personally,
or by telecopy, notice shall be deemed delivered upon receipt (provided that if
served by telecopy, sender has written confirmation of delivery); if served by
overnight express mail or overnight courier, notice shall be deemed delivered
forty-eight (48) hours after deposit; and if served by first class mail, notice
shall be deemed delivered seventy-two (72) hours after mailing. Any party may
give written notification to the other parties of any change of address for the
sending of notices, pursuant to any method provided for herein.
(c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California for contracts 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 Purchaser
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.
(e) If any provision of this Agreement shall be invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
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(f) Subject to the requirements of Section 9 hereof, this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
(g) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of reference only
and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(j) The Company acknowledges that any failure by the Company to perform its
obligations under Section 3(a) hereof, or any delay in such performance could
result in loss to the Investors, and the Company agrees that, in addition to any
other liability the Company may have by reason of such failure or delay, the
Company shall be liable for all direct damages caused by any such failure or
delay, unless the same is the result of force majeure. Neither party shall be
liable for consequential damages.
(k) This Agreement, the Securities Purchase Agreement and the other
documents referenced therein constitute the entire agreement among the parties
hereto with respect to the subject matter hereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement thereof.
(l) Any default by an individual Investor hereunder or any related
agreement, including, without limitation, the Securities Purchase Agreement,
shall not be deemed a default by any other Investor and shall not excuse the
Company's performance hereunder or thereunder with respect to the non-defaulting
Investors.
(m) In the event of any action for breach of or to enforce or declare
rights under any provision of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, to be paid by the losing
party.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
NETGATEWAY, INC., a Delaware corporation
By: /s/ XXXXXX X. XXXXXXX, XX.
--------------------------------
Name: Xxxxxx X. Xxxxxxx, Xx.
Title: President and Chief Operating Officer
KING XXXXXXX, LLC, a Cayman Islands limited
liability company
By:
---------------------------------
Manager
