EXHIBIT 10.117
SECOND RESTRUCTURING AGREEMENT
Second Restructuring Agreement (this "Agreement") dated as of July 11,
2001 by and between Netgateway, Inc., a Delaware corporation ("Netgateway") and
King Xxxxxxx, LLC, a Cayman Islands Limited Liability Company ("King Xxxxxxx").
WHEREAS, the parties entered into (i) a Securities Purchase Agreement
(the "Purchase Agreement") dated July 31, 2000 pursuant to which Netgateway
issued to King Xxxxxxx 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 (ii) a Registration Rights Agreement dated
July 31, 2000 (the "Registration Rights Agreement") between Netgateway and King
Xxxxxxx;
WHEREAS, Netgateway issued Common Stock Purchase Warrants
(collectively, the "Warrants") (i) 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
and (ii) dated as of January 25, 2001 to acquire a total of 269,000 shares of
the Common stock par value $.001 of Netgateway;
WHEREAS, the parties have entered into a Restructuring and Amendment
Agreement (the "Restructuring Agreement") dated January 25, 2001. Terms used
herein with initial capital letters and not defined herein shall have the
meaning assigned to them in the Restructuring Agreement;
WHEREAS, Netgateway defaulted on certain of its obligations set forth
in the Restructuring Agreement and King Xxxxxxx agrees to waive those defaults
as set forth herein;
WHEREAS, the parties entered into that certain Waiver Agreement (the
"Waiver Agreement") dated as of May 9, 2001; and
WHEREAS, Netgateway wishes to pay, and King Xxxxxxx has agreed to
accept, in full satisfaction of all amounts payable under the Debenture, a cash
payment of $100,000, shares of Common Stock representing 9.99% of the Common
Stock of Netgateway at the time of conversion and a $400,000 promissory note of
Netgateway in the form attached hereto as Exhibit A (the "Note").
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. Conversion.
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(a) The current principal balance of the Debenture is $2,522,789.90 and
as of July 11, 2001 the amount of accrued interest (all accrued interest on the
Debenture through Closing, "Accrued Interest") thereon was $93,094.61.
(b) Section 4.E of the Debenture and Section 1.i of the Purchase
Agreement are amended to replace all instances of the number 4.99% therein with
the number 9.99%.
(c) As of the date of this Agreement Netgateway hereby represents that
a total of 22,542,990 shares of common stock, par value $.001 per share of
Netgateway (the "Common Stock") are issued and outstanding and the only
additional shares presently anticipated by Netgateway to be outstanding on the
date of the closing (the "Closing") of the transactions contemplated by this
Section 1 are (i) up to 8,306,000 shares of Common Stock issuable upon
conversion of the approximately $2,100,000 of 8% convertible debentures issued
by Netgateway during 2001, (ii) 2,000,000 or more shares of Common Stock to be
issued to certain members and former members of the senior management of
Netgateway and certain trade creditors of Netgateway in full satisfaction of the
approximately $600,000 or more owed to such persons and (iii) 3,000,000 or more
shares of Common Stock potentially to be issued in connection with a private
placement of such Common Stock currently in progress.
(d) The term "Final Conversion Shares" shall mean such number of shares
of Common Stock as will result in King Xxxxxxx having beneficial ownership,
immediately following such conversion, of 9.99% (calculated in accordance with
Section 4.E of the Debenture) of the Common Stock of Netgateway, provided,
however, that such number shall not be less than 4,100,000 shares of common
stock.
(e) Netgateway agrees to pay, and King Xxxxxxx agrees to accept, in
full and final satisfaction of the Debenture (i) a cash payment of $100,000 (the
"Cash Payment"), (ii) a $400,000 promissory note of Netgateway in the form
attached hereto as Exhibit A (the "Note") and (iii) the Final Conversion Shares.
No Accrued Interest shall be payable in connection with the payments referred to
in clause (i) and (ii) above. No payments of principal or interest required to
be made prior to or after the date of this Agreement under the terms of the
Debenture, the Restructuring Agreement or the Waiver Agreement shall be made by
Netgateway prior to the Closing or the termination of this Agreement. King
Xxxxxxx agrees to waive any late delivery penalties accrued in connection
therewith.
(f) King William's obligation to complete the transactions contemplated
by this Section 1 are conditioned upon (i) receipt of the Cash Payment, the
Note, the Final Conversion Shares and the CFO's Certificate (as defined herein)
at the Closing, (ii) King Xxxxxxx having beneficial ownership, at the time of
the Closing after receipt of the Final Conversion Shares, of at least 4,100,000
shares of Common Stock and (iii) King Xxxxxxx having beneficial ownership,
immediately following receipt of the Final Conversion Shares, of 9.99%
(calculated in accordance with Section 4.E of the Debenture) of the Common
Stock. If the condition set out in the foregoing clause (ii) above is not
satisfied then King Xxxxxxx xxx, in its sole discretion, elect to complete the
Closing, and, after receipt of the Final Conversion Shares, have beneficial
ownership of less than 4,100,000 shares of Common Stock. Notwithstanding the
foregoing, if the number of Final Conversion Shares exceeds the number of shares
of Common Stock that King Xxxxxxx would receive if it converted the entire
amount due under the Debenture (including accrued interest but reduced by the
amount of the Cash Payment and the Note) into Common Stock at a conversion price
of $.30 per share then King Xxxxxxx agrees to decline and forever waive receipt
of such additional shares. To the extent conversion of the principal amount of
the Debenture is insufficient to satisfy the share delivery requirement under
clause (ii) or (iii) above accrued interest on the Debenture shall be converted
to satisfy such requirement.
(g) The Closing shall take place on or before August 10, 2001 on a date
specified by Netgateway with four business days prior written notice to King
Xxxxxxx except that if the condition set out in either Section 1(f)(i) or
Section 1(f)(ii) has not been satisfied then Netgateway may elect to delay the
closing to a date not later than September 10, 2001. If the Closing has not
occurred by the close of business on September 10, 2001 then this Agreement
shall automatically terminate. If this Agreement is terminated this Agreement
will forthwith become null and void, and there will be no liability or
obligation on the part of either party hereto, except that Sections 5 and 7
hereof and the first sentence of Section 8 hereof shall survive such termination
and except that no such termination shall relieve any party for any breach of
this Agreement existing at the time of such termination.
(h) At the Closing Netgateway shall deliver to King Xxxxxxx (i) the
certificate (the "CFO's Certificate")of the Chief Financial Officer of
Netgateway setting out the number of shares of Netgateway which were outstanding
immediately prior to the Final Conversion, (ii) the Cash Payment, (iii) the
Note, and (iv) a certificate representing the Final Conversion Shares. At the
Closing King Xxxxxxx shall deliver to Netgateway (i) a notice of conversion
specifying that the entire balance of principal and interest on the Debenture
(reduced by the amount of the Cash Payment and the Note) is being converted into
Common Stock and specifying that delivery and receipt of all shares of Common
Stock in excess of the number of Final Conversion Shares is irrevocable and
forever declined and waived for all purposes and that King Xxxxxxx declines to
retain any portion of the principal amount of or accrued interest on the
Debenture, (ii) the original Debenture marked "Cancelled--Paid in Full" and
(iii) a receipt.
(i) From and after the completion of the Closing the Debenture shall be
deemed to be fully paid and satisfied for all purposes and Netgateway shall be
deemed to have fully performed and satisfied all of its obligations under the
Debenture.
(j) Netgateway represents and warrants that, assuming the conversion of
the Debenture in accordance with the terms of the Debenture as modified by this
Agreement, the holding period of the Debenture may be tacked to the holding
period of the Common Stock acquired by King Xxxxxxx upon conversion of the
principal amount of the Debenture.
(k) Section 4(g) of the Purchase Agreement is amended and restated in
its entirety to read as follows: The Company covenants and agrees that it will
not, without the prior written consent of the Buyer, enter into any subsequent
sale of Common Stock or securities convertible into Common Stock with any third
party until March 31, 2002 other than (A) Common Stock issued as "restricted
stock" as defined in Rule 144, (B) a secondary public offering of Common Stock,
(C) an offering of securities convertible into Common Stock either (I) in the
case of a fixed (subject to standard institutional anti-dilution protections)
conversion price with a conversion price at the time of issuance of the
convertible security at or above market provided that the conversion price is
$.30 or more, (II) in the case of conversion price determined by reference to
the trading price of Common Stock at the time of conversion so long as the
conversion price is at or above Market Price at the time of conversion provided
that the conversion price is $.30 or more or (III) with a conversion price
(subject to standard institutional anti-dilution protections) greater than or
equal to $1.00, (D) the issuance of securities (other than for cash) in
connection with a merger, consolidation, sale of assets, disposition or the
exchange of the capital stock for assets, stock or other joint venture interests
or strategic relationships, (E) the grant or exercise of employee stock options
and other employment and consulting compensation, (F) the conversion of
securities or the exercise of warrants provided that the Common Stock issued in
connection therewith shall be "restricted stock" as defined in Rule 144, (G) any
issuance of Common Stock in any future transaction with Buyer. Netgateway agrees
that until March 15, 2001 it will not file a registration statement with regard
to any of the Common Stock referred to in A, C and F above and that it will not
file a new registration statement with respect to any of the Common Stock
referred to in E until April 30, 2002.
2. Future Convertibility. King Xxxxxxx represents and warrants as of the date
hereof that there are not outstanding conversion notices with respect to the
Debenture and King Xxxxxxx agrees that it will not issue any further conversion
notices pursuant to the Debenture as amended and supplemented to date.
3. Registration Rights. The Registration Rights Agreement is hereby amended as
set forth herein. The "Required Filing Date" shall be August 31, 2001 and the
"Required Effective Date" shall be December 1, 2001. The last sentence of
Section 2(b)(vi) is amended to delete the word "not" and insert at the end the
words "which payment together with the grant of Additional Warrants under the
Second Restructuring Agreement and the Investor's rights under Section 2(b)(iv)
hereof, shall be the exclusive remedy and right of the Investor". The
"Registerable Securities" shall include the shares issuable upon the exercise of
both the Additional Warrants (as defined herein), and the warrants issued
pursuant to the Restructuring Agreement. Sections 2(b)(i) shall be deleted in
its entirety and references to "Late Filing Penalties" in Sections 2(b)(ii) and
(iii) of the Registration Rights Agreement shall be deleted. Sections 2(b)(ii)
and (iii) shall be further amended to reduce the monthly penalty, for failure to
cause the Registration to be declared effective by the Required Effective Date,
to an amount equal to (A) one percent (1%) multiplied by (B) the Purchase Price
of the Debenture, less the aggregate conversion price of shares of Common Stock
acquired upon conversion of the Debenture which have been sold by King Xxxxxxx
xxxxx to the date of accrual of such penalty. Section 2(b)(iv) of the
Registration Rights Agreement is hereby amended to replace the phrase "within 60
days of the Closing Date" with the phrase "by October 15, 2001", to replace the
phrase "within 180 days of the Closing Date" with the phrase "by March 15, 2002"
and to replace the phrase "to redeem the Debentures ... of the Debenture" with
the phrase "to repay in full in three business days the $400,000 note made by
the Company and payable to the Inventor". Section 5(b) of the Registration
Rights Agreement is deleted in its entirety. The applicable Sections of the
Debenture, the Purchase Agreement and the Registration Rights Agreement are
hereby amended to change the address for notices to Netgateway to the address
set out on the cover of its most recently filed of the following, its annual
report on Form 10-K, quarterly report on Form 10-Q and current report on Form
8-K as its executive offices with a copy to:
Xxxxxxx Xxxxx & Xxxxxxx
000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxx, III
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If the Registration Statement is not filed by the Required Filing Date,
Netgateway shall within three (3) business days thereafter, deliver to King
Xxxxxxx an Additional Warrant. If the Registration Statement has not been
declared effective by November 15, 2001 (which is a date independent of and
prior to the Required Effective Date), Netgateway shall within three (3)
business days thereafter, deliver to King Xxxxxxx a second Additional Warrant.
The term "Additional Warrant" as used herein in each instance shall mean a
warrant to purchase 240,000 (which number shall be adjusted in the same manner
as the Conversion Price under Section 10 of the Debenture) shares of Common
Stock of Netgateway in substantially the form of the warrant attached to the
Purchase Agreement except that (i) such warrant shall contain a condition to and
prohibition on exercise to the extent that following such exercise King Xxxxxxx
would be the beneficial owner of more than 9.99% (calculated in accordance with
Section 4.E of the Debenture) of the Common Stock, (ii) the shares issuable upon
exercise of the Additional Warrant issuable if the registration statement
contemplated by this Section 3 is not filed prior to August 31, 2001 must be
included in that registration statement and (iii) the shares issuable upon
exercise of the Additional Warrant issuable if the registration statement
contemplated by this Section 3 is not effective prior to November 15, 2001 must
be added to that registration statement in the next pre effective amendment
thereto (if any) and if not so included shall have the benefit of piggyback
registration rights in accordance with the last two sentences of this paragraph.
Such Additional Warrant or Additional Warrants shall have a term of three years
from the date of issuance and an exercise price equal to 115% of the Current
Market Price (on the Required Filing Date and/or November 15, 2001 as
applicable). The term "Market Price" as used in the definition of Current Market
Price in the Debenture shall mean the closing bid price. No Additional Warrants
shall be issued and Section 2(b)(iv) of the Debenture shall not be applicable to
the extent any delay in the filing or effectiveness of the Registration
Statement occurs because of the act of, or a failure to act or to act timely by
King Xxxxxxx or its counsel if Netgateway timely forwards to counsel any
required documents. If the first Additional Warrant is issued prior to the
Closing then (i) such Additional Warrant shall contain a term prohibiting its
exercise until November 15, 2001 and (ii) for greater clarity the shares
issuable upon exercise of such Additional Warrant shall not be added to the
number of shares beneficially owned by King Xxxxxxx when calculating the number
of Final Conversion Shares. The piggy-back registration rights shall provide
that if Netgateway files a registration statement pursuant to the Securities Act
of 1933 to register the sale of Common Stock (or securities resulting from a
change of Common Stock into the same or a different number of shares of another
class or classes of stock or securities of Netgateway or another entity or
shares of stock of any entity Netgateway is merged into), Netgateway shall
include in such registration statement the Common Stock issuable upon exercise
of the Additional Warrant. This provision shall not apply to a registration
covering the distribution of the Common Stock on Form S-4 or Form S-8 or any
successor form, and, in the case of an underwritten offering, King William's
shares will be included in such registration statement only if King Xxxxxxx
becomes a party to the underwriting arrangements with respect thereto.
4. Volume Limitations.
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(a) King Xxxxxxx agrees that it will not sell any of the Common Stock
of Netgateway beneficially owned by it or sell any part of or interest in the
Debenture or any of the warrants to acquire Common Stock held by it prior to the
Closing or termination of this Agreement. On the condition that King Xxxxxxx has
not demanded repayment of the Note due to a default thereunder by Netgateway and
that Netgateway is not in breach of its obligations under Section 2(a) of the
Registration Rights Agreement as modified by this Agreement, King Xxxxxxx agrees
that upon the effectiveness of the Registration Statement that it will limit its
aggregate daily sales of Common Stock to the greater of (i) 15% of the higher of
the previous day's trading volume or the current day's trading volume, or (ii)
an amount which results in aggregate gross proceeds from the sale of shares
equal to $20,000, or (iii) 20,000 shares. On the condition that Netgateway is
not in default of its obligation to file the Registration Statement on or before
the Required Filing Date, King Xxxxxxx hereby agrees it will not sell any Common
Stock pursuant to Rule 144 prior to September 15, 2001. For the purposes of this
Section 4 the term "sales" and "sell" shall include any offer, sale, short sale
of, loan, grant of any option for the purchase of, pledge, hypothecation, or
other disposition of, directly or indirectly, any shares of Netgateway common
stock.
(b) King Xxxxxxx agrees that, notwithstanding Section 2(a) of the
Registration Rights Agreement the shares of Common Stock listed below may be
included in the Registration Statement in addition to the shares of Common Stock
of King Xxxxxxx. Xxxx William's consent is conditioned upon, each such person
whose shares are actually included in such registration statement referred to in
paragraphs (i) and (ii) below being, at the time of filing of the Registration
Statement, subject to limitations on the sale of such shares pursuant to the
Registration Statement which limit each such person to either (i) sales of 5% of
the shares of Common Stock held by such person per month on a cumulative basis
or (ii) sales of 25% of the shares of Common Stock held by such person per
quarter on a cumulative basis. Netgateway agrees that it will not release such
persons from, or amend such limitations, without the prior written consent of
King Xxxxxxx.
(i) Common stock of Netgateway to be issued upon conversion of the
approximately $2.1 million principal amount of 8% Convertible Notes
issued by Netgateway.
(ii) Up to 6,500,000 shares of Common Stock of Netgateway issued
and to be issued by Netgateway in a private placement (the "Private
Placement") currently in progress and up to 630,000 shares of Common
Stock of Netgateway to be issued upon the exercise of warrants issued
in connection with such private placement.
(iii) Up to 210,000 shares of Common Stock issued or to be issued
in connection with the exchange of such Common Stock for shares of
stock of a subsidiary of Netgateway issued in connection with
acquisition of Spartan Multimedia by Netgateway during 1998.
(iv) Up to 200,000 additional shares of Common Stock.
5. Waiver of Defaults. King Xxxxxxx waives its right to make conversions (other
than the conversion provided for herein) based upon Netgateway's failure to make
the payments due on June 10, 2001 and July 10, 2001 and the payment required to
be made on August 10, 2001 under the terms of the Restructuring Agreement and to
declare a default as a result of such non-payment and each of such payments
shall instead be made on September 11, 2001 unless the Closing shall have
occurred in which case no such payments shall be required to be made on such
date in accordance with Section 1 hereof. In addition, King Xxxxxxx hereby
agrees that failure to make said payment referred to in the previous sentence
shall not result in the reinstatement of late filing penalties pursuant to
Section 5 of the Restructuring Agreement. The foregoing waiver by King Xxxxxxx
shall not be deemed to be a waiver of any future defaults or any rights
exercisable in connection therewith.
6. Affirmation of Agreement. Except as expressly set forth in this Agreement,
the Debenture, the Purchase Agreement, the Registration Rights Agreement, the
Restructuring Agreement and the Waiver Agreement remain unchanged and in full
force and effect, and are ratified and affirmed in their entirety.
7. Release. Netgateway for itself and on behalf of all direct and indirect
partners, officers, directors, employees, affiliates (both persons and
entities), agents, representatives, servants, trustees, beneficiaries,
predecessors in interest, successors in interest, assigns and nominees hereby
releases King Xxxxxxx 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 (the "Released Parties")
from any and all claims it may have against the Released Parties arising out of
the conduct of the Released Parties through the date of this Agreement with
respect to the Purchase Agreement, the Equity Agreement, the Restructuring
Agreement and the Waiver Agreement and the transactions completed pursuant
thereto. Netgateway 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.
8. Miscellaneous. Netgateway agrees to reimburse King Xxxxxxx for legal fees and
costs incurred by it in connection with this transaction in the amount of
$20,000, such amount to be paid to King Xxxxxxx at the Closing and if the
Closing shall not have occurred then on or before September 11, 2001. King
Xxxxxxx 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 Warrants.
This Agreement shall be binding on all future holders of the Debenture and of
the Warrants and King Xxxxxxx agrees to take appropriate action to such effect.
9. Choice of Law and Venue. 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 Netgateway
or King Xxxxxxx shall be brought and maintained exclusively in the state or
Federal courts of the State of California, sitting in the City of Los Angeles.
Netgateway and King Xxxxxxx hereby expressly and irrevocably submit 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.
Netgateway and King Xxxxxxx further irrevocably consent to the service of
process by registered mail, postage prepaid, or by personal service within or
without the State of California. Netgateway and King Xxxxxxx hereby expressly
and irrevocably waive, 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
Netgateway or King Xxxxxxx 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, Netgateway and King Xxxxxxx
each hereby irrevocably waives such immunity in respect of its obligations under
this Agreement and the related agreements entered into in connection herewith.
10. Specific Performance. The parties agree that if any party should fail to
comply with its obligations hereunder that the aggrieved party would be
irreparably damaged and therefore the aggrieved party shall be entitled to
equitable relief, including specific performance, to enforce such obligations
and if any action should be brought in equity to enforce any of such provisions
that none of the parties hereto shall raise the defense that there is an
adequate remedy at law.
11. Entire Agreement. This Agreement and the other agreements referred to herein
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all other agreements and understandings.
12. Signatures. A facsimile transmission of this signed Agreement shall be
liable and binding on all parties hereto. This Agreement may be signed in one or
more counterparts, each of which shall be deemed an original.
13. Interpretation. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
14. Enforceability. 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.
15. Amendment. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as
of the date first above written.
Netgateway, Inc. King Xxxxxxx, L.L.C.
By: _____________________________ By: _____________________________
Name: Name:
Title: Title:
